There are different considerations and long-term consequences involved with various entity structures deemed “appropriate” for a small company. Before forming a corporation it is advisable to contact a business attorney to ensure that a corporation is the proper vehicle for your business and industry. Once this is done, and you have determined that a C or an S corporation is the correct choice of entity, you need to start thinking about the identity of initial directors, corporate officers and the initial shareholders. While a director can assume multiple officer roles, Florida law requires at least one director who must be a natural person (not an entity). You will then need to gather all the basic information set forth by §607.0202, Fla. Stat., to complete and file the articles of incorporation with Florida Division of Corporations. Such information includes the corporate name, principal address, registered agent, amount and type of authorized shares and other basic information. The designation of a registered agent is important to ensure timely receipt of service of process in the event corporate officers are not available or cannot be found. It should be noted that the process server is permitted to serve an employee of a corporation if a registered agent cannot be located; therefore, it is advisable to choose a registered agent wisely. In addition, the articles must include “any preemptive rights to be granted to shareholders…” Id. Preemptive rights, also known as preemption rights, apply to stockholders of a corporation, allowing them to purchase more shares in the event of corporate offering so they can preserve their initial share of ownership and voting power by preventing dilution of their interest.
Before filing the articles of incorporation, a state and federal trademark search should be conducted by an experienced business attorney to ensure the corporate name you selected is available. For the purposes of distinguishing the corporation from other forms of business entities, its name must conform to the requirements set forth in F.S. §607.0401(1), mandating use of the word “corporation,” company,” or “incorporated” or its respective abbreviations “Corp.,” “Inc.,” or “Co.” It is also important to determine whether the corporation is going to do business under a fictitious name (sometimes called “assumed name” or “trade name”). Pursuant to Fla. Stat. §865.09, if the corporation or other entity is going to conduct business using a trade name different from corporation's exact name designated in the articles of organization, it must register with the division of corporations first by filing a “sworn statement” to that effect. (In some states, such as New York, this is done by filing what is called a “Certificate of Assumed Name.”) Thus, if the business is a corporation, and its official name ends in “Inc.,” which the business omits in its day-to-day activity, it must register as such before it can use it. The consequences and the penalties imposed for failing to abide with this statute are severe so it is important to maintain conformity.
Important Caveats: Persons who choose to conduct business on behalf of a corporation prior to its official formation with Division of Corporations must exercise care to safeguard their liability exposure arising from a particular transaction. Fla. Stat. §607.0204, which specifically addresses the impact of entering into such transactions, states that such individuals (founders/incorporators) will be held jointly and severally liable if they are aware that the corporation has not yet been formed and if the third party with whom they transact business is unaware of corporation's non-existence. Also, while a corporation may be organized “for any lawful purpose or purposes,” if a specific purpose, which is not required, is nevertheless provided, actions taken outside such a limitation could be deemed beyond the scope of corporate authority, resulting in invalidation of the action taken. Another very important consideration is the election of Subchapter S status. The corporation must prepare and file a Form 2553 with the IRS, no later than 75 days from the date of incorporation listed in the articles of organization. This is an important consideration with drastic tax and legal implications, determination of which requires the advice of an experienced Florida business attorney and an accountant. There are other matters to be considered. For instance, corporations and other businesses planning to transact business in other states must file qualifying paperwork and pay the applicable fee to register to do business in those states before actually doing so. Similarly, pursuant to Fla. Stat. §607.1501, before a foreign corporation may transact business in Florida, it must obtain a “certificate of authority” from Florida Department of State.
Another important consideration is the adoption of bylaws (sometimes called “by-laws”) and a shareholder agreement. The bylaws are the operational guide of the day to day running of the business. They handle the general operational issues regarding who the owners are and govern the internal affairs of the business itself. Bylaws are divided into a series of articles distinguished by concepts, which in turn contain a series of subsections. Like the articles of incorporation, bylaws are generic documents and are not meant to be subject to constant monthly amendments. For this reason they do not need to mention any of the particular names of the parties. Another important document is the shareholder agreement. This agreement defines the relationship between the shareholders and imposes restrictions to be adhered to amongst them. In this sense, it is not very different from an operating agreement of a limited liability company. It is important to remember that the purpose of these documents is not to provide a verbatim copy of Florida Business Corporation Act (Act), by listing every provision that the code provides. Instead, the aim is to resolve as many potential conflicts and unpredictable situations as possible so that harm to the corporation can be reduced. The documents therefore, for the most part, aim at those provisions that have a greater potential of causing disagreement and instability between the parties. For this reason, if a provision or an issue is not addressed in the documents, most likely it is not as troublesome, and the Act will then govern and resolve the issue.
Once above matters have been ascertained, the corporation has been established and above named documents have been drafted, an organization meeting must be held by the initial board of directors (or by incorporators, if no initial directors have been specified in the corporation's articles) to complete the organization. During this meeting, officers will be designated, bylaws will be adopted, identity of shareholders will be determined, applicable shares will be issued, and other matters will be conducted to finalize the organizational process. A unanimous written consent of the board in lieu of this meeting is also an option.
Above are only some of the many factors to be considered by persons who are in the process of forming a corporation. Given the multitude of other considerations involved and documents to be drafted, as well as the specific matters surrounding creation of each specific business entity, the involvement of an experienced business attorney is very important. At J. Allen Law P.L. our Orlando and Tampa business attorney helps our clients navigate through this process and avoid costly future mistakes. You can reach our Central Florida business attorney by calling (407) 205-2330. You may also complete the online form and our Orlando and Tampa business lawyer will contact you shortly.
If you need to create a business entity contact our Central Florida business attorney today by calling (407) 205-2330. You may also complete the online form and our Orlando and Tampa business lawyer will contact you shortly. We offer a free cosultation. Your privacy is very important to us and we will keep all your information confidential.
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