All You Need To Know About Corporations

This article will be a quick and to the point document based on understanding a corporation.

A corporation that follows the laws when created is known as a De Jure corporation. It is created when the articles of incorporation are filed with the state secretary of state’s office. Along with the article a corporation will generally include it’s business purpose and statement as well. The bylaws of the corporation are internal documents mostly used to help in the organization of the articles. A origination that is a De Jure corporation will be recognized as valid by the state. A origination can still be created if its articles of incorporation are not filed with the secretary of states office. However, it may not be recognized by the state unless the following three elements are relevant. 1) a relevant state statute exists explaining how to form a corporation 2) the corporation believed that in good faith that it followed the statute and 3) that the corporation has been holding itself as having all the corporate privileges usually retained by a corporation in the state. If the corporation follows all three of these elements it will be considered a De Facto corporation and will be recognized by the state as a corporation.

The Make Up Of The Corporation

There are generally three different members that make up an organization.

  • Shareholders
  • Directors (Board of Directors)
  • Officers

The shareholders are the largest members of the organization. They are the ones who vote for who is elected to the board of directors. The shareholders also have votes on all fundamental changes that may occur within a corporation such as mergers, dissolution, and a change of business. The directors have a fiduciary duty to the shareholders. The directors are elected by the shareholders and themselves, vote on who will be the officers of the corporation. The board of directors generally also have a final vote on daily business matters. The directors can also create certain committees to assist in governing the franchise.  The officers are generally the most noticeable in the public eye. They have certain functions and job duties as assigned to them by the bylaws of the corporation. An officer has the ability to bind a corporation to certain deals, contracts, and liabilities, much like those involved in an agency. Therefore, it is very important that the officers are selected with great care. In addition, officers owe corporations 1) a fiduciary duty, 2) duty to act as a reasonable person 3) duty to act in the best interests of the business 4) duty of disclosure.

Fiduciary Duties

At times officer are approached by other corporations for certain deals or purchases. An officer and any board of director must inform the company if they would benefit personally from such a deal, if they have family members involved with the deal, or anything they should reasonably disclose so as to not harm the corporation. When a deal that may serve the interest of any individual officer or board member becomes available and the board moves to vote on it, it can only be voted on if at least two disinterested board members agree that the move is appropriate. These directors and officers have duties similar to a partnership, but above all else of loyalty to the corporation.


For each general meeting or shareholder meeting, there must be quorum. A quorum is when you have a majority of all the shares present for a meeting. Even if the shareholders leave the meeting, once quorum is achieved then you are good to go. If a special meeting is required 1/10th of the shares must be present, and two days notice must be given.


If a shareholder or a board member does not wish to vote or cannot make the meeting they can vote by proxy. By a signed writing to the secretary of the corporation, they can assign their vote to a representative to vote for them. This is generally irrevocable for up to 11 months unless the person who originally assigned the vote sends notice to the secretary to revoke it, or shows up to the meeting themselves.


Dividends are only given out when the board of directors elect to do so. They can only elect to do so if their assets would not be less than their credit and if they can still pay creditors.


Dissolution occurs when the creditors have obtained a judgment against the corporation and the corporation cannot pay, the corporation is insolvent, or the corporation has admitted to the state in writing that it owes money. Merger and selling of assets are not considered dissolution…technically.

Piercing The Corporate Veil

A corporation can be pierced by the courts. This means that instead of creditors and individuals harmed by the corporation suing the corporation, the court will allow representatives to be personally sued themselves (think Enron). This usually can occur as a result of a corporation

  • Ignoring corporate formalities
  • The corporation never had capital to begin with
  • The corporation has failed to act like a business and has evaded existing obligations or laws (they have committed fraud).

Remember, this is just a quick rundown of corporations, we will publish some more in detail information about corporations on our business law page!