What steps are required to incorporate a business and establish its corporate structure?

"Setting up a corporation is more complex than starting a sole proprietorship or partnership. Most states base their laws for chartering corporations on the Model Business Corporation Act of the American Bar Association, although registration procedures, fees, taxes, and laws that regulate corporations vary from state to state. A firm does not have to incorporate in the state where it is based and may benefit by comparing the rules of several states before choosing a state of incorporation. Although Delaware is a small state with few corporations actually based there, its procorporate policies make it the state of incorporation for many companies, including about half the Fortune 500. Incorporating a company involves five main steps: Selecting the company’s name; writing the articles of incorporation and filing them with the appropriate state office, usually the secretary of state; paying required fees and taxes; holding an organizational meeting; and adopting bylaws, electing directors, and passing the first operating resolutions. The state issues a corporate charter based on information in the articles of incorporation. Once the corporation has its charter, it holds an organizational meeting to adopt bylaws, elect directors, and pass initial operating resolutions. Bylaws provide legal and managerial guidelines for operating the firm. Articles of incorporation are prepared on a form authorized or supplied by the state of incorporation. Although they may vary slightly from state to state, all articles of incorporation include the following key items: Name of corporation; company’s goals; types of stock and number of shares of each type to issue; life of the corporation, usually “perpetual,” meaning with no time limit; minimum investment by owners; methods for transferring shares of stock; address of the corporate office; and names and addresses of the first board of directors. As Exhibit 4.4 shows, corporations have their own organizational structure with three important components: stockholders, directors, and officers. Stockholders, or shareholders, are the owners of a corporation, holding shares of stock that provide them with certain rights. They may receive a portion of the corporation’s profits in the form of dividends, and they can sell or transfer their ownership in the corporation, represented by their shares of stock, at any time. Stockholders can attend annual meetings, elect the board of directors, and vote on matters that affect the corporation in accordance with its charter and bylaws. Each share of stock generally carries one vote. The stockholders elect a board of directors to govern and handle the overall management of the corporation. The directors set major corporate goals and policies, hire corporate officers, and oversee the firm’s operations and finances. Small firms may have as few as 3 directors, whereas large corporations usually have 10 to 15. The boards of large corporations typically include both corporate executives and outside directors, not employed by the organization, chosen for their professional and personal expertise."