What You Need to Know About Your New Corporation
When you set up a business, you can do so under different types of legal entities. A corporation is just one of the many options available to you. In Florida, you also could set up your company as a limited liability company, as a D/B/A (which stand for “doing business as”), simply under your own name, or as a combination of more than one entity (like a corporation doing business as…). Your choice should be based on the pros and cons of each as they relate to your business, such as tax implications, the size of your company, whether or not you’ll be selling goods or services and where you’ll be selling them (across multiple states or outside of the U.S., the number of your employees, potential liability and much, much more.
One of the most attractive features of a corporate business entity is the provision of limitation on the liability. In other words, if the corporation is sued in court and found to be liable, it may be that the owners and/or shareholders of the corporation would be shielded from personal liability. As long as the corporation handles itself appropriately and according to law, the shareholders will not be held personally liable,and are protected under a “corporate veil.”
The major players of a corporation include the shareholders and the directors. The shareholders own the corporation and provide capital for the business to start up, though they do not take an active role in managing the business. The directors manage the business and its affairs while exercising corporate powers. The directors are elected to the board of directors by the shareholders.
The shareholders entrust the management of the business to the directors. As such, the directors have fiduciary duties, specifically, a duty of loyalty and a duty of care, which run both to the corporation and the shareholders as the ultimate owners of the corporation; failure to adhere to these duties may result in personal liability for the directors. Duty of loyalty means that the director must act in good faith and in the best interest of the corporation and its shareholders, not themselves personally, while the duty of care, or the duty to exercise good business judgment, requires a director to be diligent and prudent in managing the corporation’s affairs.
Once a board of directors is elected, the board can appoint officers to serve on the board. These officers, typically, perform most of the day-to-day business operations. These roles must include, at a minimum, the President (Chief Executive Officer or CEO), the Treasurer (Chief Financial Officer or CFO), and the Secretary. The President acts as the general manager of the corporation, the Treasurer handles the books and records, while the Secretary keeps written minutes of all meetings and proceedings of the shareholders, the board, and committees of the board.
There are three important areas of corporate formalities: shareholder decision making, director decision making, and separation of corporate assets from personal assets. Shareholder decision making includes the election of board members, and certain specified fundamental changes in the form of operations of the corporation requiring the written consent or by approval through a meeting of the shareholders.
Director decision making regards matters of more general operating policy, which should be considered and authorized by the board of directors, including but not limited to the appointment of officers, setting salaries, opening corporate bank accounts, policy decisions, declaration of dividends, redemption of shares, amendment to the bylaws, review of financial statements, etc.
Separation of corporate and personal assets are crucial, so as to not have owners of a company use the assets of the corporation as their own. Otherwise, they could be held personally liable to the extent the corporation itself may be held liable.
Once you have formed your corporation, there are additional matters to consider. For example, just because you have formed a corporation within your state, does not mean you can automatically perform business in another state. The same way that you set up your business in your current state, you must also file a foreign corporation in a state where your business does not reside, but is to conduct business in.
Additionally, make sure your business also has obtained a business license to conduct business within the city or cities it intends to operate. Your business also will need a Federal Employer Identification Number (FEIN) from the Internal Revenue Service. Also, it will need to keep an annual list of its officers, directors, and its agent; maintain files and records; pay federal and state taxes, personal property taxes, sales and use taxes, payroll taxes, and federal unemployment taxes where applicable; and obtain unemployment compensation and workers’ compensation insurance when necessary.
Maintaining a corporation in accordance with the laws and standards of the state and the country is a hefty responsibility; however, with the right people involved it can be a rewarding experience, both personally and monetarily.
If you need help selecting the best business entity for your company, or you need legal expertise to ensure you are following all applicable laws governing your business, please contact Meehle Law today for a consultation. We’d love to help.