Operating a Corporation

Operating a Corporation

When running a corporation, always keep records of important business activities. Below are some of the most common issues to consider in maintaining your corporation.

1. Keep corporate affairs separate from personal affairs

It's important to keep business affairs separate from the personal affairs of the shareholders, directors and officers. This means setting up a separate bank account and maintaining separate records, including books for accounting purposes.

2. Carry out all corporate meetings as required

Directors need to hold periodic meetings, and shareholders must meet once a year to elect directors. Meetings can take place in person or by phone. Either way, you need to make a written record of the items discussed and actions approved at the meetings. Alternatively, you can just get all the directors (or a majority of the shareholders) to sign a statement approving corporate actions. This is known as "written consent."

3. Manage the transfer of corporate ownership interests

Generally, as long as all applicable laws are followed, a shareholder is free to sell or transfer shares to anyone. However, with small corporations in which the shareholders act more like partners and each is integral to the success of the company, you may wish to consider placing restrictions on the transfer of shares.

Shareholders sometimes enter into a buy-sell agreement, which sets the terms for when shares can be transferred or sold. A typical buy-sell agreement would state that, if one shareholder seeks to sell shares to any third party, the other shareholders have a right of first refusal; that is, the other shareholders may purchase those shares at the same price. Only if the other shareholders do not purchase those shares can a shareholder sell to a third party.

Additionally, certain professional corporations can only have shareholders who are licensed professionals, which limits the transfer of shares.

4. Process all corporate tax forms and licenses in a timely manner

Every corporation must obtain a federal tax identification number, which is similar to an individual's Social Security number. Some states also require a separate state tax number. In addition, certain business licenses may be required. Please check with your city, county and state to see which types of licenses you need.

  • Corporation: Introduction
    Each year, hundreds of thousands of corporations are registered in this country, and it is not a coincidence that the largest businesses in the world are corporations. The corporation is a popular method of doing business for most people because it offers many advantages over partnerships and sole...
    read more
  • What is a Corporation?
    A corporation is a legal person that can be created under state law. As a person, a corporation has certain rights and obligations, including the right to do business in its own name and the obligation to pay taxes. Some laws use the words "natural persons." A natural person refers only to human...
    read more
  • Articles of Incorporation
    The Articles of Incorporation (in some states referred to as the Certificate or the Certificate of Incorporation) is the document that is filed with the appropriate state agency to start the corporation. In most states, this agency is the Secretary of State but may be called the Department of State...
    read more
  • Shareholder
    A shareholder is a person who owns stock in a corporation. In many small corporations, the shareholders act as the officers and directors, but many shareholders do not have these roles in large corporations. Sometimes small corporations have shareholders who are not officers, such as when the stock...
    read more
  • Board of Directors
    The board of directors is the controlling body of a corporation that makes major corporate decisions and elects the officers. It usually meets just once a year. In most states, a corporation can have one director (who can also hold all offices and own all the stock). In a small corporation, the...
    read more
  • Officers
    Officers are appointed by the board of directors to run the day-to-day operations of the corporation. Commonly, and by law in many states, a corporation will have at least three officers: President Treasurer or Chief Financial Officer Secretary Officers do not have to be shareholders or directors,...
    read more