How many officers must sign a document to bind the corporation?

Even if a corporation has not properly authorized a corporate transaction, the corporation may not raise the “due authorization” defense when a document is signed by (1) the board chairman or president or any vice president; AND (2) the secretary or any assistant secretary or the chief financial officer or any assistant treasurer (See, Cal. Corp. Code Sec 313). If two corporate officers – one from each category – sign a document, the corporation is bound so long as the person accepting the signatures had no actual knowledge that the person signing lacked authority (See, Snukal v. Flightways Mfg. (2000) 23 C4th 754, 784, 98 CR2d 1, 26).

What is the date of formation?

The date the Articles are signed has no legal significance. The filing date is the date of formation.

Is a corporation suffix (e.g., “Inc., Corp., Ltd.”) required?

A corporate suffix is only required for a professional corporation, a statutory close corporation or when the corporate name is the name of an individual. Nevertheless, it is good practice to use a corporate suffix to put the world on notice that third parties are dealing with a corporation.

What is an appropriate statement of a corporation’s purpose?

Except for professional corporations, which must describe the specific profession in which the corporation will be engaged (e.g., law, medicine, accounting), the California corporation’s code requires only that a corporation state that its purpose as follows: “The purpose of the corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business, or the practice of a profession permitted to be incorporated under the California Corporation’s Code”. Under prior law, Articles typically included a laundry list of powers of corporation, but it is no longer appropriate to include any additional statement regarding the powers or rights of a corporation in the Articles. It is appropriate, however, to include limitations on the powers or rights of a corporation in the Articles of Incorporation (e.g., prohibitions on the power of a corporation to engage in certain types of business transactions).

Should the Articles of Incorporation designate multiple classes of shares?

In some cases, a corporation’s capital structure will consist of multiple classes of shares (e.g., common, preferred) and series within those classes (e.g., Series A Preferred). Different classes generally contain different rights (e.g., with respect to voting, dividends, conversion, liquidation rights, etc.). Great care must be taken when establishing more than one class of shares, as doing so can have tax consequences. For example, a S-Corporation can only have one class of shares. In many cases, an investor’s rights agreement or shareholder’s agreement can be drafted to accomplish similar goals (e.g., with respect to voting and control) without the tax issues. The Articles can provide for detailed rights of each class of shares or the Board of Directors can later do so and then file a Certificate of Determination.

What is included in the Articles of Incorporation?

Articles of Incorporation must contain only very basic information, including (1) the name of the corporation, (2) a statement of the corporation’s purpose, (3) appointment of an agent for service of process, (4) capital structure (e.g., a single class of common shares).

Welcome to eMinutes Magazine

Welcome to eMinutes Magazine! For over a decade, I have devoted my law practice to forming, structuring, maintaining, and dissolving businesses. We have formed thousands of corporations and LLCs for a mind blowing range of business ventures (from real estate development and restaurants to entertainment and the internet), and we handle the maintenance of thousands of corporations doing business in nearly every state in the country.  I have had the good fortune of working with the best and the brightest of the business world. Read more