Steps to Amend the Articles of Incorporation:

1. Easiest Method. The Corporate Filing Office
may have a form, either online or available upon request, which you
can fill out and file. So check with them first to see if the form
is available. If the form is available, you will need to describe
the change to be made and indicate that the change is approved by
the shareholders of the corporation. There is usually a small
filing fee involved. Before you file the form, you will need to get
corporate authority to take the action (The procedure for this is
described in the next paragraph).

2. Obtain Corporate Authority. Whether you use
an online form from the Corporate Filing Office or follow the
procedure outlined , you need to have corporate authority. Most
amendments to the articles of incorporation require approval of the
shareholders as well as directors. This is actually a protection
for shareholders so that fundamental changes to the corporation
cannot be made without their knowledge and approval. Authority to
amend the articles of incorporation can be obtained by preparing a
Consent in Lieu of Corporate Meeting or in holding a special
meeting of shareholders.

Please Note: This resolution can be inserted in a set of
minutes or inserted in consent in lieu of corporate
meeting.

3. Prepare Articles of Amendment. If the state
Corporate Filing Office does not have a form to use for amending
articles of incorporation, you will need to prepare one. The form
is often titled, “Articles of Amendment.” The Articles of Amendment
contain basic information about the corporation and then describe
the amendment or change to the articles. They also frequently
indicate the number of shares which voted in favor of the amendment
and the number of shares, if any, which voted against the
amendment. This form will then need to be filed with the Corporate
Filing Office together with a filing fee. Before filing the form,
you will need to obtain corporate authority

Steps to conduct an organizational meeting of the
corporation:

1. Send Notice to All Participants. All of the
initial participants are entitled to notice of any meeting. This is
fundamental to insure that any actions taken at the meeting are
legal and authorized. Requirements for a notice of an
organizational meeting should, at a minimum, include specifics as
to date, time and location of the meeting. The notice should also
state or describe the items or business to be discussed and voted
on at the meeting. Most corporate laws require that the notice be
served or mailed at least ten days before the meeting. However,
this requirement can be waived if agreed to by all of the
participants.

2. Conducting an Organizational Meeting. There
is no required procedure in corporate law for conducting an
organizational meeting of the corporation. The procedure used is up
to the initial participants of the corporation. Some (mostly larger
corporations) use a formal procedure utilizing Robert’s Rules of
Order with motions made, seconded, discussion and then a vote. Most
(usually smaller corporations) use less formal procedures
consisting of a simple discussion on issues and then a vote. The
vote can be oral or in writing but there should be a count of the
vote taken by a corporate officer, usually the corporate secretary.
An agenda of business to be conducted at the meeting is advisable
but not required.

Special Note About Quorum Requirements: A “quorum” refers to
the number of members of a body or group required to be present in
order to transact the business of the body or group. There will
likely be no quorum requirements for the organizational meeting
because the bylaws or other corporate documents, which set out
quorum requirements, have probably not been adopted yet. This is
one of the purposes of the meeting. However, it seems only prudent
that all of the initial participants be in attendance at the
meeting so that they can be involved in the organization
process.

3. Prepare Minutes of Meeting. A corporate
officer, or someone assigned by them, needs to keep minutes of the
meeting. This is usually done by the corporate secretary but can be
someone else. Minutes are simply a written record of the
proceedings of the meeting. There is no legal requirement as to the
form for minutes or how detailed minutes have to be. However, they
should be detailed enough for someone reading the minutes to be
able to know what business of the corporation was conducted at the
meeting and what resolutions were passed or failed. They should
also indicate whether a notice was given for the meeting, who was
in attendance at the meeting and who voted on various resolutions
brought before the meeting. It is also advisable, but not required,
to indicate reasons for the directors taking certain action.

Special Note: The organization of a corporation can be
accomplished without a formal meeting, just like any other
corporate action, so long as there is unanimous written consent of
the initial participants.

Special Note: In my experience, this is one of the most
effective and timesaving procedures a small corporation can use to
conduct its formal business.

Examples might be if the corporation needed to issue shares of
stock, amend the articles of incorporation to change the corporate
name, or to sell a corporate asset. A notice for a meeting could be
prepared and a meeting of shareholders held. However, this all
takes time and if all shareholders are in agreement with the action
to be taken, preparing a written consent form is much easier and
faster. Steps to conduct corporate business without a meeting:

1. Prepare Written Consent or Authorization. A
corporate officer should prepare or direct the preparation of a
proposed document, usually called a, “Consent in Lieu of Corporate
Meeting” or “Approval of Corporate Action Without A Meeting.” The
name given the document is not too significant. The document must
state in written form the action to be approved or resolution
adopted by the corporation. Reasons for the action being taken can
also be included.

2. Obtain Signature of All Participants. The
document should be read, approved and signed by all members of the
group, either shareholders or directors. If any member disagrees or
is not willing to sign the document, then this procedure will not
work (unless the corporate law of your state only requires majority
approval). In that case, the members need to follow the procedures
for holding a corporate meeting.

Steps to conduct a special meeting of directors:

1. Send Notice to the Directors. All directors
are entitled to notice of any meeting of directors. This is
fundamental to insure that any actions taken at the meeting are
legal and authorized. Requirements for notice of a special meeting
are usually contained in the corporation’s bylaws. At a minimum,
notice should include specifics as to date, time, and location of
the meeting. The notice should also state or describe the items or
business to be discussed and voted on at the meeting. Most
corporate laws require that the notice be served or mailed at least
ten days before the meeting.

2. How to Conduct a Director’s Meeting. There
is no required procedure in corporate law for conducting a meeting
of directors. The procedure used is up to the directors and/or
shareholders of the corporation. Some (mostly larger corporations)
use a formal procedure utilizing Robert’s Rules of Order with
motions made, seconded, discussion, and then a vote. Most smaller
corporations use less formal procedures consisting of a simple
discussion on issues and then a vote. The vote can be oral or in
writing but there should be a count of the vote taken by a
corporate officer, usually the corporate secretary. An agenda of
business to be conducted at the meeting is advisable but not
required.

Special Note About Quorum Requirements: A “
quorum” refers to the number of members of a body or group required
to be present in order to transact the business of the body or
group. Quorum requirements for a director’s meeting are most often
set forth in the corporation’s bylaws. The most common quorum
requirement is for the presence in person (including presence by
electronic means such as a telephone conference call) of a majority
of the authorized number of directors. Voting requirements are also
most often set forth in the bylaws. A common requirement is that if
a quorum is present, the affirmative vote of a majority of the
directors present is required. If the number of people required to
make up a quorum is not met at the meeting, any action transacted
or resolutions passed would not be valid and could be
challenged.

3. Prepare Minutes of Meeting. A corporate
officer or someone assigned by the corporate officer, needs to keep
minutes of the meeting. The corporate secretary usually does this,
but minutes can be taken by someone else. Minutes are simply a
written record of the proceedings of the meeting. There is no legal
requirement as to the form for minutes or how detailed minutes have
to be. However, they should be detailed enough for someone reading
the minutes to know what business of the corporation was conducted
at the meeting and what resolutions passed or failed. They should
also indicate whether a notice was given for the meeting, who was
in attendance at the meeting, and who voted on various resolutions
brought before the meeting. It is also advisable, but not required,
to indicate reasons for the directors taking certain action. For
example, if the directors decided to fire the president of the
company, it would be advisable to indicate the reasons. If the
president were to file some form of legal action relating to the
action, the minutes would reflect the directors’ reasons for taking
the actions.

Special Note: If a director is present at a
meeting but does not vote, he/she is generally considered to have
assented to or agreed with actions taken unless the director makes
his/her objection known. For a director’s own protection, any
objection to corporate action should be in writing or noted in the
minutes.

Minutes are seldom audited by government agencies and are mainly
for the use of the corporation. They do become important documents
in the event of legal actions involving directors, shareholders, or
others or in the event of disputes between shareholders. Generally,
the more information that is contained, the more helpful the
minutes will be in the event of disputes. A copy of the minutes
should be kept in the corporate records.

Majority Ownership – The most common and obvious way is for a shareholder to own a majority of the shares of the corporation. In corporate law, each share of common stock is worth one vote for such things as directors or for major corporate changes. This is true, unless the articles of incorporation provide a different voting arrangement. Therefore, if a shareholder, or group of shareholders, owns 51% or more of the corporation’s voting shares, they control voting on such issues as directors and major corporate actions.

However, be aware that many states have adopted corporation statutes that still require majority shareholders to deal fairly with minority shareholders and not take undue advantage of them.

Shareholder Agreement – Regardless of share ownership, shareholders are entitled to enter into agreements with respect to the election of directors or other corporate matters. A Shareholder’s Agreement could provide that each shareholder will be entitled to nominate a person of their choosing to be on the board of directors or that shareholders will vote in a certain way on other corporate actions. The courts usually uphold agreements like these between shareholders.

However, agreements requiring directors to vote in a certain way may not be upheld for the reason that courts have determined such agreements may violate the independent right of directors to make decisions in the best interest of the corporation and its shareholders.

Different Classes of Stock – A corporation can issue different classes of stock with each class having different voting rights or different financial benefits.

Note: This will not work with S corporations because an S corporation can only issue one class of stock.

The following are several examples of how this can work:

There are two shareholders in a corporation with shareholder A contributing $10,000 and shareholder B contributing $10,000. However, the business is the idea of shareholder A and he is the main working force behind the idea. They agree that shareholder A will have priority in decision-making, but they will share equally in financial benefits. They authorize issuance of 10,000 shares of Class A stock to shareholder A and 10,000 shares of class B to shareholder B. Class A stock authorizes 2 votes for each share of stock as compared to Class B stock with one vote for each share. However, each share of stock provides the same financial benefits with respect to dividends and liquidations. This way, Shareholder A controls the management of the corporation but they share equally in the financial benefits.

The reverse happens when shareholder A contributes $10,000 and shareholder B contributes $5,000. They agree to share equally in the management and operation of the corporation but shareholder A wants some additional benefit for his larger contribution. They authorize issuance of 10,000 shares of Class A stock to shareholder A and 10,000 shares of class B to shareholder B. They each have the same number of votes to elect directors or take major corporate actions so their management rights are equal. However, Class A stock provides for twice the dividends and better rights upon liquidation than the Class B shares.

A minority shareholder desires to insure that he continues to be the corporate secretary with veto power over any amendments to the articles of incorporation. A special class of stock could be issued, say Class C, which provides that the corporate secretary must be a holder of Class C stock and the articles of incorporation can only be amended by an affirmative vote of two-thirds of each class of stock.

Three shareholders each contribute $1000 for start-up capital but the idea behind the business came from shareholder A. Shareholder A wants to have the same voting power as shareholders B and C combined. They decide to issue two classes of stock with both classes having the same financial benefits. However, Class A stock is voting stock and Class B stock is non-voting stock but has the same financial benefits as Class A stock. Shareholder A gets 1000 shares of Class A stock. Shareholders B and C each get 500 shares of Class A voting stock and Class B non-voting stock. The result is that Shareholder A has the same voting power as B and C combined but shares equally in the financial benefits.

Increased Voting Requirements – One procedure to help protect minority shareholders is to create increased voting and quorum requirements in the articles of incorporation. This, in effect, gives minority shareholders a veto over important corporate actions. For example, the articles of incorporation could provide that it requires a two-thirds majority to amend the articles of incorporation or even that it requires unanimous approval.

Note: The issuance of different classes of stock or increased voting requirements can be complicated and usually requires the assistance of a corporate attorney to help plan and implement.

Officers and directors can also be liable for certain tax obligations of the corporation that are not paid. Even if a director or officer is ultimately not found liable, they can still spend a lot of time and money defending themselves in a lawsuit filed against the corporation. That’s why most larger corporations find it necessary to provide D & O (director & officer) insurance for those who serve in these capacities. Unfortunately, this insurance can be quite expensive and is cost prohibitive to most smaller corporations.

The point is that if you are asked to be an officer or director of a small corporation, you should weigh your decision carefully, balancing the potential pitfalls with the benefits. If you are being offered stock in the corporation or a lucrative job, the risk may be worth it. On the other hand, if you are being asked to serve as a favor to a friend or relative, perhaps you should decline the offer.

One of the questions you should ask is whether the corporation is able to provide D & O insurance. Also, a corporation can agree to indemnify officers and directors with respect to any lawsuits filed against them. This can be done by placing an indemnification provision in the articles of incorporation or by separate agreement. This can be valuable protection if the corporation has sufficient income and assets to pay for the protection. If it doesn’t, then an agreement to indemnify is not worth much.

Important Note: If you agree serve as an officer or director of a corporation, make sure you become actively involved, not just in name only. The best way to protect yourself is to know what is going on and make informed decisions. If you are going to be an officer or director, you have a duty to be informed about corporate actions and dealings.

The corporate organization needs to be completed and
observed. In a nutshell, this means filing articles of incorporation, holding an organizational meeting or preparing a consent in lieu that
provides for adoption of bylaws, appointment of directors
and officers and authorizing the issuance of shares of stock.

Issue shares to the shareholders. Issuance of shares of stock is often done at the organizational meeting although it can be done at other
times as well. If no shares are issued, a question arises as to
who owns the corporation and who is entitled to vote. A
corporation cannot be properly organized without
shareholders.

Hold shareholder and director meetings. There is no legal requirement that meetings be
held in a certain manner. They can be formal or informal.
Corporate law does provide that shareholders and
directors should hold meetings to conduct corporate
business which is outside the ordinary day-to-day operation
of the business. In lieu or instead of holding meetings, the
law allows each of the participants to agree in writing to the
corporate action being taken by signing a Consent in Lieu of
Corporate Meeting.

Corporate law does not dictate how
many meetings should be held or how often meetings
should be held. That is up to the directors of the
corporation and is based upon the business needs of the
company. Having minutes of meetings or consents in lieu of
meetings in your corporate records is a good indication that
you have been operating like a corporation. However, the
absence of minutes or consents is an indication you have not
been operating like a corporation.

Treat corporate property as separate from the individual
shareholders. Property owned by the corporation should
not be used for the personal benefit of individual
shareholders unless there is a valid business reason for
doing so. Authorization for a shareholder to use corporate
property should be set out in minutes or as a written
consent from the board of directors. A shareholder may
need to reimburse the corporation for the use of certain
property.

Do not co-mingle corporate and personal funds. Since a
corporation is a separate legal entity, a new corporate
checking account should be established as soon as the
corporation is formed. Corporate funds and the
shareholder’s personal funds should not be commingled.

The corporation should also maintain a set of corporate
books or financial records that are separate and apart from
the shareholder’s individual finances. The shareholders
should not pay personal expenses with corporate funds
and/or checks. However, a shareholder can receive
payment in the form of a salary, bonus, commission, etc.,
and can be reimbursed for business expenses so long as the
proper accounting is made.

Sign corporate documents properly. The proper signing of
corporate documents is important so that a question is not
created as to whether the individual or corporation is legally
bound. The important thing is that it is obvious that the
person signing is doing so for or on behalf of the
corporation and not for themselves individually.

Make certain that your customers and creditors are
aware that you are operating as a corporation. You
should notify, to the extent reasonably possible, all of
your customers and creditors that you are now
operating your business in the corporate form. This can
be done by putting the corporate name on your
letterheads, envelopes, business forms, business cards,
and business checks. You should make certain that
advertisements, signs, brochures, etc., contain the proper
corporate designation at the end such as Inc., Co., or
Corp. If you have followed these steps, you should be entitled to the
limited liability protection. If you have not, the judge may pierce the
veil and find the shareholders individually liable for the corporation’s
debts.

The number of issued shares
outstanding determines ownership and voting rights in the
corporation. For example, in a small company with two shareholders,
the articles of incorporation may authorize 100,000 shares of common
stock. However, the directors may decide to issue only 20,000
shares, with 10,000 shares issued to each shareholder. Each
shareholder then owns 50% of the issued shares of stock. Together,
their combined shares equal 100% of the issued and outstanding
shares of the company’s stock. The remaining 80,000 shares of
authorized shares may or may not be issued at some future date at
the discretion of the directors.

Non-par value stock is stock that has no stated
value. The shares are issued for consideration or value as
determined by the board of directors. The value of non-par value
stock generally changes or fluctuates with the value of the company.
One of the required parts of the initial articles of incorporation is a
description of the corporation’s authorized stock and whether it is
par, non-par value stock and/or preferred stock.

A quorum usually means a majority (more than 50%). However, the
articles of incorporation or bylaws of a corporation can increase or
decrease quorum requirements for certain types of action. For
example, the bylaws could say that only 1/3 of the directors are
needed to constitute a quorum for purposes of taking a certain type
of action.

If less than 1/3 show up at the meeting, they cannot
officially vote or take corporate actions because they did not have a
quorum. Or the articles of incorporation might require all
outstanding shares be represented at a shareholders meeting to vote
on a resolution to authorize a merger of the corporation with
another corporation.