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Forming a Corporation | Kathryn McCall

so now we're to the corporation which is

what most of you are probably going have

formed going to form looking forward to

forming maybe not looking forward to

forming so what is a corporation a

corporation is an independent legal

entity owned by the shareholders it's

formed under the laws of the state in

which it is registered so if I form a

corporation by filing Articles of

Incorporation with the secretary of

state of California it's a California

corporation if I file a certificate of

incorporation in Delaware with the

Delaware Secretary of State

it's a Delaware corporation kind of

Illinois corporations Wyoming

corporations Nevada corporations all

different states and then once again we

get this whole issue of liability the

corporation itself not the shareholders

who are the owners is how legally liable

for the actions and debts of the

corporation it's more complex than other

types of business structures because of

the administrative fees complex tax and

other legal requirements so a lot of

record-keeping a little bit more complex

so what are the ownership and governance

basics essentially the corporation is

owned by its stockholders or

shareholders the stockholders elect a

board of directors the board of

directors are responsible for the

overall direction and goals of the

corporation so they set the goals

they're like the guys who steer the ship

this is the direction we're going this

is the way we're going this is what

we're gonna do the Board of Directors

appoints the officers chief executive

officer secretary chief financial

officer the officers carry out the

directions of the board of directors the

officers are responsible for the

day-to-day running of the corporation

and then the officers might hire

employees

who are working for the corporation now

one person can be an employee an officer

on the board and a stockholder you can

have a corporation with just one person

and that one person is the sole

shareholder the sole member of the board

is the CEO CFO and secretary and might

be employed by the corporation so people

can hold multiple roles you know if

you're a shareholder doesn't mean you

can't be an employee if you guys work at

a start-up you might get a stock option

you exercise your stock option now you

have shares you're a shareholder and an

employee if you're founding a startup

you're gonna hold stock in that startup

you probably be on the board you might

also be the CEO and you're probably

gonna draw a salary meaning you're an

employee so I get questions all the time

about you know will I'm on the board so

I can't be CEO yes one person can hold

multiple roles you can have somebody BC

CFO and secretary people can hold

multiple roles so how do you form that

corporation first you file with the

Secretary of State of the state in which

you want to incorporate and we'll talk

about Delaware don't worry it's coming

you draft bylaws bylaws are kind of like

the operating agreement in an LLC but

not nearly as complex you elect

directors you appoint officers and you

issue stock to shareholders that's kind

of it so what's it take to file articles

or a certificate of incorporation the

incorporator usually I act as the

incorporator for companies that I'm

forming it's a one-page document I file

it with the Secretary of State it's done

the articles and then that those

articles will contain what's the address

of the principal place of business who's

going to be the agent for service of

process the agent is if that corporation

gets sued that's the

person who takes service of process for

the corporation has to be a real person

and has to be somebody in the state so

if you're filing in Delaware has to be a

person or a corporation in Delaware that

has an address in Delaware there's

people that will do act as that for you

how many shares are you gonna issue 10

million 20 million that goes into your

certificate of incorporation and then if

you're gonna issue anything other than

common stock preferred stock Series A

Series B Series C whatever that goes

into your certificate of incorporation

and then each series of stock so if you

have different series of stock they have

different rights preferences and

privileges all that goes into your

certificate of incorporation but if

you're in the beginning stages of

forming a corporation generally you're

gonna stop here you're not going to need

to designate common or preferred or what

their rights preferences and privileges

are so usually just to form a

corporation it's a one-page document

then you draft bylaws your bylaws are

what govern your how the corporation is

going to operate so how are stockholder

meetings going to be held how do you

notify stockholders of a stockholder

meeting when our board meetings going to

be held how do you notify board members

of a board meeting

what's quorum for a stockholder meeting

what's quorum for your board meeting

what happens if in the middle of a

stockholder meeting you need to adjourn

and then start up again do you have to

Reno defy everybody how is that handled

and it also talks about who are you or

how the directors are gonna be elected

what are the procedures what if a

director resigns how do you elect a

replacement that's in your bylaws and

then appointment of officers what sort

of officers are you gonna have and where

their roles and responsibilities is

gonna be what is the CEO do what is the

CFO do what's a secretary do how are

those people appointed and then kind of

the borings of procedures for management

stock certificates what if somebody

as a stock certificate what do you do

does everybody get a stock certificate

and then indemnification of Directors

and officers so this is something that

we stick in the bylaws that basically

you want your Board of Directors and

your officers to operate freely and

without fear of repercussion so if

they're operating in good faith on

behalf of the corporation and something

goes wrong and they get sued you want

the corporation to indemnify them as

long as there was no fraud or

intentional willful wrongful acts

involved and then if you're getting

outside investors who are gonna sit on

your board generally they will insist

upon this so you elect your directors

and employed officers again if I'm the

incorporator I file a certificate of

incorporation for a company I'm

incorporating then immediately after

that I'm going to resign as in

corporator and in point the board of

directors now the board of directors can

take over then the Board of Directors

are going to elect the officers

president treasurer secretary or CFO CEO

secretary and again a director can also

be an officer remember people can hold

multiple roles and as you don't have to

have it all in one so when it's the

beginning stages and you're thinking I'm

just one person how can i form a

corporation I don't have multiple people

one person can be a whole corporation

yes who leads more your CEO

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well the C CEO is going to be appointed

by the board so the Board of Directors

would appoint or remove the CEO so the

CEO answers to the board but the

employees are going to report to the C

CEO or maybe their supervisor or

something so the CEO is in charge of the

day-to-day operations and functioning of

the business but under the direction of

the board that answer your question okay