Part Two: Forming A Corporation

Forming A Corporation Our last episode was an abridged (very abridged) history of the corporation.  In this part we fast forward and look at how corporations are put together in today’s world.  In California the instruction manual is a much amended set of laws passed by the Assembly in 1859 called the Corporations Code .  Every state has one.  In some states the manual goes by a different name, but the basic instructions are all the same.

The first thing required is an incorporator.  The incorporator’s job is to write articles of incorporation , sometimes called a charter.  The term charter, although seldom used these days, is perhaps more descriptive of the purpose of the document, because it is simply a brief chart of the corporation’s essential elements .  In the articles the incorporator states the name of the corporation, its purpose, the name of its agent for service of process, and the maximum number of shares of stock it may issue.

The incorporator then submits the articles to the state for approval.  This is accomplished by filing them in the secretary of state’s office and paying a filing fee.  California’s current filing fee is $100.  California also requires payment of a minimum “franchise” tax for the privilege of doing business in the state, which is currently $800.

The secretary of state’s office stamps the first page of the articles with the date, a unique reference number for the corporation, and the secretary of state’s name.  The corporation now exists, but only barely.  The original articles are retained by the secretary of state, and a copy is returned to the incorporator with a certification that the copy is “true and correct.”

Next the incorporator adopts bylaws  for the corporation and elects the corporation’s first board of directors.  Having completed his job, the incorporator then resigns.  Of course the incorporator has not done his job on a whim, but at the request of the promoters of the corporation, who will usually become the corporation’s first directors, officers, and shareholders.  One of the promoters, or his attorney  or accountant, will usually have acted as the incorporator and filed the articles.

Now comes the first meeting of the board of directors, called the organizational meeting.
By passing resolutions, the directors first ratify the adoption of the bylaws, then elect the officers of the corporation.  It must have a president, a secretary, and a treasurer.  After that are some housekeeping chores, such as the adoption of the corporations official seal, form of share certificate, and accounting period, the payment of the incorporator’s expenses, and the designation of its principal office and bank, the last referred to as the banking resolution.

Then on to the main event, the initial issuance of the corporation’s shares of stock .  The corresponding resolution of the board lists the names of the first shareholders, the number of shares each will receive, and the amounts each of them will contribute in exchange for the shares.  Those amounts become the initial capital of the corporation, which is capitalized by their contribution.           

The president and secretary issue the shares of stock by filling out the share certificates and delivering them to the corresponding contributors, who become shareholders.  The treasurer deposits their contributions of capital into the corporation’s bank account, which the bank will usually not open without copies of the articles of incorporation and banking resolution.  The first meeting of the board of directors is now over, and the corporation has full legal existence.

San Diego Business Attorney Stanley D. Prowse specializes in California Corporate Law. We are located in Carlsbad California and welcome your legal inquiries.


By Attorney Stan Prowse
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