Wednesday, July 20, 2016


When signing contracts or other documents on behalf of the entity you need to use your title otherwise someone might conclude that you are signing on behalf of yourself and hold YOU liable for any shortfalls.

Your title should be something like President, CEO, VP or Secretary.  Officers are agents of the company and are empowered to sign documents on behalf of the entity subject to the rules as described in the Bylaws or Operating Agreement.  While a Statutory Agent is also an agent of the entity, it is a specific role which does NOT include being able to bind the entity.  Roles such as Owner, Stockholder, Shareholder, Member, Founder, or the like, reflect roles outside of the entity.  They do not represent a role as agent for the entity and therefore are inappropriate for use when executing documents on behalf of the entity.  Failure to sign using the appropriate title even one time may subject you to liability for those situations.  Routinely failing to use your title when signing documents may lead someone to conclude your entity is a sham and not to be relied upon for any of its protections.

Tuesday, July 19, 2016

Operating Your New Busines


In order to receive the protections provided by having an entity certain procedures must be followed.  One of the first requirements is to put others on “Notice” that your business is organized as an entity with limited liability.  Accordingly, ALL of your official documents must use the business’ official name including the Inc., LLC, Co., Ltd. which tells the world what type of entity you are using.  Note: S-corporation status is a tax matter and not a legal one so you do NOT need to disclose the “S” status.

The documents that need your complete official name include your checks, invoices, letterhead and all legal notices.  Signs, brochures and business cards are considered marketing materials and do not require your official name but it is often beneficial to use it anyway.

Monday, July 18, 2016

Voting and Rules of Order


Likewise, voting arrangements can vary including under what circumstances will proxies be accepted.  Will there need to be a so-called “super majority” for issues like:
•    the sale of the business,
•    borrowing in excess of $10,000,
•    a merger, consolidation or dissolution,
•    long term contracts,
•    hiring or firing,
•    declaring dividends,
•    changing officers’ salaries?

Rules of Order

It is generally accepted that as a meeting grows in size and complexity that rules of order will need to be imposed so everyone gets to present their ideas in a tolerant environment without chaos.  Robert’s Rules of Order have been used almost exclusively for this purpose.

According to Robert’s Rules of Order, parliamentary procedure is based on the consideration of the rights: of the majority, of the minority (especially a large minority greater than one-third), of individual members, of absentee members, of all of these groups taken together. 

However, even this can be daunting since the work is very old and has changed several times making the version used an issue in and of itself.  The current edition of the series became effective on September 23, 2011, and is entitled Robert's Rules of Order Newly Revised, Eleventh Edition (2011).  However, some may choose to use a shorter reference guide, Robert's Rules of Order Newly Revised In Brief, the Second Edition, which has been published to coincide with the main edition. 

Friday, July 15, 2016

Quorum Defined

A quorum is defined as the minimum number of members that must be present at any of the meetings to make the proceedings of that meeting valid.  This may vary but if not stated to the contrary, a simple majority will satisfy quorum requirements.  However, by itself, this doesn’t address the issue of whether someone who calls in will be counted in that number.  Therefore, the issue, at some point, will need to be addressed.

Thursday, July 14, 2016

Meetings and Minutes

 Note:  Unless you have executed a Close Corporation Agreement( see the section on Close Corporations), you must complete Minutes of annual meetings of the corporation’s directors and shareholders.  The meetings can be held at any date and time that is convenient for you that allows enough time to prepare financial reports for the year just ended.  It is important that you hold an annual meeting or at least sign (execute) the pre-written minutes because the directors and officers are only appointed for one year terms and are re-appointed every year at this time.

Recall that the Bylaws are modified through this process of holding a meeting of the Directors (or Shareholders depending on circumstance) and therein “resolving” to adopt the specified changes.  Simple things like changing taxing status, salaries, insurance carriers or accountants need to be documented through the meetings and minutes process. 

It is also beneficial to note in your Minutes some of the activity of the Company for the year such as major contracts, insurance coverage, the hiring of team members such as accountants and lawyers, the renting or purchase of real estate, major purchases, any disputes, and in essence, anything major or extraordinary, i.e.  anything but the routine.

If you failed to hold a meeting don’t create a fictitious set of Minutes and backdate it.  Backdating even one document may undermine the veracity of all your corporate records.  There is an after-the-fact way to make up for the oversight which involves having the relevant parties, either shareholders or directors, ratify the decisions and actions taken by the directors and/or officers since the last meeting (or the filing with the Secretary of State if the first meeting was not held).  In it there should also be a waiver of all notice requirements, a re-election of all directors, a re-appointment of all Officers and some verbiage to the effect of “…the Board of Directors of ABC Company does hereby consent in writing that the resolutions herein be adopted and direct that this consent be filed with the official corporate minutes, to have the same force and effect as a unanimous vote of the Board of Directors of the corporation at a meeting duly held this date…” which will then be executed (signed) by each Director and dated the current date.

As the business grows and more people are attending meetings, care should be given to issues of whether a quorum is present, voting procedures including proxies, and rules of order which should all be outlined in the Bylaws. 

Wednesday, July 13, 2016

Organizational Matters


The bylaws of the corporation are the rules by which it operates and these rules govern the activities of its shareholders, directors, and officers. 

Since these Bylaws are standard and pre-written for most corporations, you may feel the need to customize or add to the Bylaws.  You may do this by holding a meeting, and writing the changes on a blank MINUTES OF DIRECTORS MEETING.  You may want to customize in these areas:
•    Dividends - when and how much will be paid.
•    Officer salaries.
•    Directors compensation - if, when, and how much will be paid.
•    Further conditions for the transfer of stock, like what to do in the event of the death of a shareholder.  Will the stock be left to the spouse, or must it be sold back to the corporation?
•    What happens if the corporation dissolves?  How will the assets be distributed?

At some point in the future a shareholder may want to leave the corporation and sell his stock.  How do you determine what the stock is worth?  It's better to determine this in advance to prevent arguments.  Many corporations value stock by taking the stockholder's equity (Assets - Liabilities) and dividing it by the number of shares.  Other corporations have director meetings about once every six months to set a value for the shares.  Others adopt a formula based on the earnings such as EBITDA (Earnings Before Interest, Taxes, Depreciation & Amortization) times three or five.  The method is up to you.

Wednesday, June 22, 2016

What you need to Incorporate

Number of People needed to Incorporate

To incorporate a business in Ohio, you only need ONE (1) person.  Three Officer roles of President, Treasurer and Secretary must be filled.  However, all officer and director positions may be held by one person and these do NOT have to be paid positions.  Incorporators should be at least 18 years of age; however state law has no particular requirements stating such.

Annual Meeting

An annual meeting of the Shareholders is to be held once a year to review the results of the operations with the owners.  Likewise there should an annual meeting of the Directors.

In larger companies, owners do not generally participate in daily business operations, so to keep owners informed about their investment, corporations are required by State law to hold annual meetings for this purpose.  Annual meetings are also held to appoint, or re-appoint, the officers and directors of the corporation.  LLCs and “close corporations” are exempted from these meeting formalities.

The requirement of holding an annual meeting is satisfied by the documentation of a standard pre-written form called “Minutes of Annual Shareholders Meeting,” which records the actions, discussions and decisions since the last annual meeting.