By Travis Townsend Jr.
You have spent months preparing your business plan, doing market research reading consumer reports, interviewing prospective customers, talking to other business owners about pitfalls, the whole nine yards. You have scoped out a lease for your business, selected the bank you want to house your operating account, found insurance providers for your health and business operation liability respectively. Your staff has been identified, thoroughly vetted, sold on your dream and are ready to hop on board. You have even gone ahead and filed your company’s Articles of Incorporation with the Secretary of State’s Corporations Division and received a certified copy of them back stamped “Filed.” All set to operate right? Not exactly.
While filing Articles of Incorporation is necessary to formally organize a business corporation, it is not sufficient. There are numerous small businesses in existence that have Articles of Incorporation as their sole organizational document. This is the case because it is not readily apparent from reviewing the Secretary of State’s website that more needs to be done than just filing the Articles. Not to mention, most “How to form a corporation” entries on the Internet do not go into detail about everything that is required. To be fully organized and positioned to do business with third parties properly, there are several additional organizational items that must be prepared.
You are not a director of the company you’ve filed Articles for just because you say so. A formal election of initial directors must take place by way of an organizational meeting, or an organizational consent in lieu of a meeting, whereby the incorporator officially takes action to put them on the Board. Similarly, you are not the CEO of your corporation just because you say so. Again, a formal appointment must take place by way of an organizational meeting, or consent in lieu of such meeting, whereby the initial directors officially appoint the initial officers of the corporation. Moreover, the initial directors of the corporation should ratify and approve the filed Articles, adopt bylaws of the corporation, and ratify all prior actions of the incorporator to ensure the effectiveness of all things done to get the corporation organized before their election.
The aforementioned procedural steps may seem unnecessary, but thorough third-party service providers and potential business prospects will request you produce records of such procedures as a prerequisite to engaging in business with them. Most financial institutions will not even permit a corporation to open a business account without providing full governing documents that include bylaws and director and officer elections. As your business grows, you may want to enter into financing arrangements and banks will want to see proof of management from inception to date before lending you substantial sums of money. Vendors and customers seeking to enter into significant business transactions with your business will want assurance that the people negotiating and executing deal documents are properly authorized to do so.
The more successful you are, the more important it becomes that you did things properly at the inception of your business. So get out the gate correctly. A few simple steps in addition to filing Articles of Incorporation will round out your company’s organization process to set a sound foundation for its successful future.