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Corporations

Corporations Lawyer in San Francisco California

One of the most recognized types of business entities are corporations.  They come in all shapes and sizes from gigantic Fortune 500 companies such as Apple, Microsoft, and Chevron to small neighborhood businesses owned by one or more individuals.  To be formed each corporation must file the Articles of Incorporation with a secretary of state where it will be domiciled, and then file additional qualification papers in any other states so that it can operate as a foreign corporation in that state.  In addition to the Articles of Incorporation, a corporation must also have Bylaws which lay some of the operating rules, Minutes that detail significant activity, Stock Certificates evidencing share ownership, and a Shareholder Agreement which defines the rights and duties of the shareholders.  Corporations are a lot of work to maintain and owners must vigilantly comply with all corporate formalities to assure the well-being of the business.

Shareholders are the owners of a corporation.  These shareholders elect a board of directors which oversees the activities of the corporation and its officers, but does not direct day-to-day business.  The high ranking officers hired by the board of directors actually run the corporation and hire the remaining employees.  The board of directors, officers, and employees provide a fairly rigid and well defined management structure, though the lines between directors, officers, and employees often get blurred in smaller corporations, where the same individuals occupy multiple positions.  Corporations can exist indefinitely and generally do not dissolve even if they loose shareholders, directors, or officers. 

A shareholder of a corporation has “limited liability” which means that generally he or she can only lose the amount invested into the corporation but creditors of the corporation cannot go after his or her personal assets absent special circumstances.  Corporations, like limited liability companies, offer a high degree of limited liability, provided that all corporate formalities are followed and the corporation avoids conduct that would cause the court to view the corporation as an “alter ego” of the shareholders.  A court may “pierce the corporate veil” if there is improper or incomplete incorporation, failure to issue stock, failure to keep minutes, failure to hold shareholder or director meetings comingling of corporate and personal funds, and or undercapitalization.  This means that, to avoid losing limited liability, persons running a corporation must follow all corporate formalities and keep the corporation adequately funded, insured, and separate from its shareholders.

Shareholders can elect to have either an “S” or a “C” corporation.  An S corporation is treated like a partnership for tax purposes meaning that it is a “flow through entity” which is taxed only once at the individual level.  There are restrictions on the number and types of shareholders who can be in an S corporation.  A C corporation is taxed on the corporate level, and any distributions it makes to its shareholders are taxed again at the individual shareholder level.  Most large corporations are C corporations.

Corporations Attorney in San Francisco

Corporations are attractive to investors (potential shareholders) because they can offer multiple classes of shares with different rights.  Most venture capitalist strongly prefer investing in corporations.  Employees of a corporation can be incentivized to work harder through stock option plans, bonus plans, pension and profit sharing. 

Transferring shares to another shareholder or a third party whether by sale, exchange, or inheritance is somewhat easier to accomplish with a corporation.  However, the Shareholder Agreement must permit or at least not prohibit the intended transfer, and for third party purchases there must be a market for the shares of the company.  The shares of publicly traded corporations are freely transferrable whereas the shares of small family corporations typically have tight restrictions on admission of new shareholders.

Contact Our California Corporation Attorneys Today

At The Zurada Law Group our Bay Area coporation lawyers can assist in the creation and on going maintenance of California corporations.

For a FREE consultation call us at 415-637-8483 or just fill out our contact form on the right hand side of your screen.

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