Although coverage differs across the board, most pre-paid plans
offer unlimited telephone consultation with a lawyer, a valuable
service that is enough to solve many small-business matters. This
encourages “preventive law”: the process whereby you identify legal
problems that affect your business, contact your lawyer and get
advice on taking steps to minimize them.

Basic plans provide coverage for simple contracts and the
drafting of simple legal documents, like a power of attorney or a
bill of sale. More comprehensive plans will deal with more
elaborate matters like equipment lease and accounts-receivable
collection work.

If you are a member of a local chamber of commerce, trade or
professional group than you can get a plan at a reduced group rate.
Otherwise, buy directly from a commercial vendor.

A document considered contractual in nature, which is signed by or on behalf of members of a corporation and filed with the designated state official, usually the secretary of state. Filing this document is the first official act of incorporating and in effect, creates the corporation. The articles of incorporation, and any amendments, constitute what in essence is the constitution of the corporation.

BLUE SKY LAWS:

A popular name for state security laws, which govern the sale or transfer of stock in a corporation.

BUY-AND-SELL AGREEMENT:

An agreement whereby either the corporation or the shareholders agree to purchase the stock of a deceased, departing, or disabled shareholder upon specified terms. Such agreements are also sometimes referred to as Cross-Purchase Agreements.

BYLAWS:

Regulations and rules adopted by a corporation to govern its internal affairs. Bylaws normally provide the framework for conducting corporate business such as requirements for holding meetings, voting requirements, duties of officers, etc.

CAPITAL SURPLUS:

Property or money received by a corporation from the issuance of stock in excess of the liability for the stock. It is normally equal to the entire surplus of the corporation less earned surplus.

C CORPORATION:

The designation given in the Internal Revenue Code to a Regular or standard corporation which has not filed the S election for tax treatment.

CLOSE CORPORATION:

A term sometimes used by various legal commentators and statutes to describe a corporation whose stock is not publicly traded, a corporation with a limited number of shareholders, or a corporation whose shareholders are active in the management of the corporate business. A close corporation has the same or similar characteristics of a small business corporation.

COMMON STOCK:

Common stock is the standard type of stock issued in a small corporation. It represents shares in both the capital and the profits of a corporation that is not entitled to preferences or priorities with respect to dividends or capital.

CORPORATE OPPORTUNITY DOCTRINE:

A rule of law that holds that a director or officer of a corporation may not seize for himself or herself, to the detriment of the corporation, a business opportunity that rightfully belongs to the corporation.

CUMULATIVE VOTING:

A system of shareholder voting whereby each shareholder may cast for any one or more candidates a total number of votes equal to the number of his voting shares multiplied by the number of positions to be filled by the election.

DE FACTO CORPORATION:

A defectively formed corporation that exists under color of law and is given legal recognition for some purposes because the organizer made a good faith attempt to organize and form the corporation in accordance with law.

DE JURE CORPORATION:

A corporation that exists by reason of substantial compliance by the organizers with existing laws. Such a corporation is generally recognized as a corporation for all purposes.

DISSOLUTION:

The termination of the legal existence of a corporation or partnership, usually in accordance with the provisions of a statute.

EARNED SURPLUS:

The portion of a corporation’s surplus equal to the balance of its net profits, gains, and losses from the beginning of its existence, or from the date when a deficit was last eliminated, after deducting distributions to shareholders and transfers to stated capital or capital surplus form earned surplus.

FRANCHISE TAX:

A tax assessed by a state against a corporation for the right and privilege of conducting a business in the corporate form in the state.

MERGER:

The uniting of two or more corporations in such a manner that one of the uniting corporations retains its corporate identity and survives the transaction, while the other uniting corporations cease to exist.

PAID-IN SURPLUS:

Amounts paid for or assigned to shares of stock of a corporation in excess of their stated capital.

PREEMPTIVE RIGHT:

The right of a shareholder to purchase newly issued stock of a corporation in the same proportion as his existing stock holdings before the stock is offered to others.

PREFERRED STOCK:

A separate portion or class of stock of a corporation that is given a preference or priority by the corporation with respect to the payment of dividends.

PRIVATE CORPORATION:

A private corporation is a term often used to describe a small corporation in which the stock is issued to a limited number of shareholders and is not available to the public. In most small private corporations, the shareholders are actively involved in the business and also serve as officers and directors of the company. Sometimes the terms private corporation and closely held corporation or used interchangeably.

PROXY:

A person who is appointed by another to represent and act for him, usually in the voting of his stock. The written document appointing the proxy person is also usually called a proxy.

PUBLICLY HELD CORPORATION:

A corporation whose stock is sold to the general public or otherwise widely dispersed and held mainly by persons not active in the business of the corporation.

REDEMPTION OF STOCK:

The repurchase or buying back by a corporation of previously issued shares of its own stock.

QUORUM:

The number of members of a body or group required to be present in order to transact the business of the body.

RESOLUTION:

As applied to a corporation, a formal expression by a body, usually either the board of directors or the shareholders, of the will of the body adopted by a vote of the body, normally dealing with a single issue, act, or event.

RIGHT OF FIRST REFUSAL:

A right that requires a person seeking to sell or transfer an item to first offer the item to the holder of the right, usually at the price offered by a third party.

S CORPORATION:

A small business corporation for which an election under Subchapter S of the Internal Revenue Code is in effect. It is considered a corporation for liability purposes but reports taxes similar to a partnership.

SQUEEZE-OUT:

The attempt by majority shareholders to eliminate or reduce to insignificance the interests and corporate powers of minority shareholders, usually without the payment of fair value for the interests of the minority shareholders in the corporation.

STATED CAPITAL:

The sum of the par values of all issued shares of stock having a par value, plus the consideration received for all issued shares of non par-value stock except that which has been lawfully allocated to capital surplus, plus any amounts that have been transferred to stated capital, less any lawfully-effected reductions of stated capital.

STOCK PURCHASE AGREEMENT:

An agreement whereby the corporation agrees to purchase the stock of a deceased, departing, or disabled shareholder upon specified terms. Such agreements are also referred to as stock redemption agreements.

STOCK SUBSCRIPTION:

An agreement wherein a person agrees to purchase shares of stock in a corporation upon its formation, which is often contingent upon the happening of certain events, such as the raising of a specified amount of capital.

SURPLUS:

The excess of the net assets of a corporation over its stated capital. The total assets of a corporation less all of its liabilities except liabilities for capital stock.

TAX YEAR:

The 12-month accounting period in which an organization or entity computes its tax liability. The “fiscal year,” and is often referred to as “taxable year.”

TREASURY STOCK:

Stock which has been issued to shareholders and repurchased or redeemed from the shareholders by the corporation.

WATERED STOCK:

Stock issued by the corporation for legally prohibited or intentionally overvalued property or services. Shares of stock issued for less than full consideration.

Although Nevada or Delaware may be good choices for
incorporation in some cases, the best advice for smaller businesses is
usually to incorporate in the state where your business is primarily
located and where you do the most business. For example, if you
incorporate in Nevada but your business office is in Oregon and you
do most of your business in Oregon, you will have to file and pay
fees in Oregon as a foreign corporation (meaning a corporation from
another state). This cost is in addition to incorporating and paying
fees in Nevada. This dual filing can be expensive and can result in
more paperwork and record keeping which may outweigh any
potential advantages.

The next source of laws is found in various court decisions. The
courts of each state often interpret and determine issues of law
regarding corporations. Written decisions from these courts can
usually be found in legal reports at a law library and sometimes at a
local library. There are also some good online services to help you
find this information. Court decisions are frequently called legal
precedents because they are often relied upon as authority by a
judge trying to decide similar legal issues. In addition, many libraries
have books or treatises prepared by legal experts, which provide
helpful summaries of the law.

However, if you are doing substantial business in other
states, then you will be required to register as a foreign corporation
in each additional state. Each state has its own definition of what
“substantial business” means. However, substantial business usually
means that you have an office or own real estate in a state or that
you have employees in a state or that you have some other form of
substantial business dealings or contacts with people in that state. It
is important to find out because there can be penalties for doing
business in another state when you are not registered as a foreign
corporation there.

Most larger companies will be registered as foreign corporations in
the different states in which they do business. Many smaller
companies, depending on the nature of their business, will only be
registered in their home state.

Corporations have sometimes been called legal fictions, meaning they exist only because the state law authorizes their existence. Corporations were first authorized by state laws to provide a form of doing business where a person could invest money in a business venture without subjecting their personal assets or property to liability.

Corporations are considered legal entities, separate and apart from the shareholders or people who own them. Thus, if a corporation is sued and the court rules against the corporation, the law allows the judgment holder to satisfy the judgment (get paid) only from the assets or property of the corporation and not the private property of the individual shareholders. This corporate attribute is called limited liability protection. In a sole proprietorship or partnership, a judgment can be satisfied from the personal property of the individual owners of the business if there are insufficient business assets to satisfy the judgment.

Not only do corporations owe their existence to state law, but they are also governed and regulated by the corporate laws of the state in which they are incorporated and/or in which they choose to do business.

Note: If a corporation sells stock, it may also be regulated by state and federal security laws.

In the early 19th century, several states enacted general incorporation laws authorizing all general business corporations to incorporate without specific legislative approval. Then various states began to eliminate the restrictions in an effort to attract business to their state. They did so because the incorporation business provided tax revenue for the state, fees for lawyers and accountants, and revenue for local newspapers, printers, etc. Other states followed suit in an effort to hold on to their corporate businesses. Delaware became the uncontested winner in the race to attract the incorporation business. Over one half of all corporations listed on the New York Stock Exchange are incorporated in Delaware. As a result, the Delaware Legislature and Supreme Court have become principle sources of modern corporation law.

In addition to Delaware, a second major influence on modern corporation law was the enactment of the Model Business Corporation Act (MBCA) by a committee of the American Bar Association. The main purpose of the MBCA was to attempt to standardize the various state incorporation laws. The MBCA was first published in 1950 and revised in 1984. Many state corporation laws now closely parallel the revised MBCA although there are some differences in each state. Although most corporate regulation is found at the state level, the enactment of the Securities Act of 1933 and the Securities Exchange Act of 1934 have provided considerable regulation of the internal affairs of publicly held corporations on the federal level.