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CONROE BUSINESS LAWYER
SMITH & GARG - CORPORATIONS LAWYERS
CORPORATIONS
A corporation can be described as a distinct legal entity which is a creation of the state charter. Typically, corporations are formed for profit, but they may also take on the character of a nonprofit organization. The Texas Business Corporations Act (TBCA) is the governing authority when it comes to organizing corporations for profit. Specifically, the TBCA provides the formal requisites for general corporations publicly traded, general corporations not publicly traded, and close corporations. There are many advantages to forming a corporation. Some of these advantages of the corporate form include the following: (1) the shareholders or owners have limited personal liability for corporate debts and obligations, and are ordinarily subject to lose only their investment in shares; (2) for the most part, the shareholders may freely transfer their ownership rights to others; (3) the corporation may have perpetual life; and (4) the corporation generally has a regular process for management decision-making which has been established by statute.When comparing a corporation to a general partnership, some of the disadvantages of forming a corporation become readily apparent. For example, the corporate form has the following disadvantages: (1) complying with the formalities of organization are much more elaborate and expensive; (2) the corporation is a tax paying entity for federal income tax purposes and federal tax liability may occur both when the corporation realizes a profit and when dividends are distributed to holders of shares; and (3) the formalities of management may be more restrictive, except when forming a close corporation.
Corporations are restricted to conducting specific activities. For example, a corporation is permitted to contract, buy and sell property or land, and to sue and be sued in contract, tort, or for statutory violations. Additionally, the TCBA states that a corporation may lend money to and assist its employees, officers, and/or directors. However, in such circumstances, any such loan must be based on a reasonable expectation of either direct or indirect benefit to the lending or assisting corporation. All business transactions and business affairs are managed by the board of directors of the corporation, which consist of members that have been elected by the shareholders themselves - the owners of the corporation. This is the typical arrangement, however a shareholder agreement may provide for different rules when it comes to carrying on the business of the corporation. The next important players are the officers of the corporation, which are elected by the board of directors. The officers are viewed as agents of the board, and carry out and enforce the policies that are established by the board.
When a corporation is formed, there are two main documents that need to be formed as well, which are the articles of incorporation and the bylaws. The articles of incorporation, discussed in more detail below, are general statements about the corporation that describe the corporate purpose, duration, and structure of the company. The articles are created by the incorporators and may be amended by the shareholders. The bylaws are a bit different because these are specific statements that lay down the law with what constitutes acceptable management procedures and what type of powers the agents of the company have. The bylaws cannot validly contradict the articles, and if by some odd chance they do, the articles of incorporation trump the bylaws. The bylaws, unlike the articles of incorporation, are adopted and may be amended or repealed by the board of directors, unless the power to amend or repeal is reserved exclusively to the shareholders in the articles, or unless the shareholders in a bylaw expressly provide that the board may not amend or repeal that particular bylaw.
With regards to corporate formalities, the articles of incorporation must have specific information contained in them. The articles must have the name/title of the corporation, which must include "corporation", "company", "incorporated", or an abbreviation of one. The name cannot be the same as or deceptively similar to the name of another registered business entity doing business in the state of Texas. Also the articles must list the number of initial directors and their names. The purpose for which the corporation is being formed (this can be a broad statement) should also be stated as well as the duration, which may be perpetual. Additionally, the capital stock structure of the corporation and the shareholders' rights with respect to such stock needs to be included in the articles. Lastly, the name and address of the corporate agent and the names and addresses of all incorporators must be included in the articles as well. Once these articles of incorporation have been sent and filed with the secretary of state, a certificate of incorporation will be issued.
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