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Corporation Basics


In addition to filing articles of incorporation, you must create “corporate bylaws.” While bylaws do not have to be filed with the state, they are important because they set out the basic rules that govern the ongoing formalities and decisions of corporate life, such as how and when to hold regular and special meetings of directors and shareholders and the number of votes that are necessary to approve corporate decisions.

Finally, you must issue stock certificates to the initial owners (shareholders) of the corporation and record who owns the ownership interests (shares or stock) in the business.

Retaining Corporate Status

Corporations and their owners must observe certain formalities to retain the corporation’s status as a separate entity. Specifically, corporations must:

  • hold annual shareholders’ and directors’ meetings
  • keep minutes of shareholders’ and directors’ major decisions
  • make sure that corporate officers and directors sign documents in the name of the corporation
  • maintain separate bank accounts from their owners
  • keep detailed financial records, and
  • file a separate corporate income tax return.

BUZZWORDS

Close Corporation – A corporation whose shares are held by a single shareholder or a closely knit group of shareholders. Generally, there are no public investors. The shareholders are active in the conduct of the business. This type of corporation is also referred to as a closely held corporation.

Intellectual Property – A wide variety of property created by musicians, authors, artists and inventors. The federal law of intellectual property encompasses the areas of copyright, patent and trademark laws.

Nonprofit Corporation – A corporation formed for some charitable or benevolent purpose and not for profit. Such corporations are afforded special tax treatment.

Piercing the Corporate Veil – The judicial act of imposing personal liability on otherwise immune corporate officers, directors and shareholders for a corporation’s fraudulent or wrongful acts.

Professional Corporation – A corporation that renders a service that requires a license or other legal authorization. Such professionals as attorneys, physicians and accountants may do business as a P.C. Incorporation does not alter professional responsibility, nor does it insulate the principals from malpractice liability.

S Corporation – A small business corporation with a limited number of shareholders. Its major significance is the fact that an S corporation usually avoids corporate income tax. Corporate losses can be claimed by the shareholders.

Secretary of State’s Office – In most states, the official office responsible for many types of formal state business, such as licensing of corporations and filing of UCC security agreements.

Shareholders – A person who owns stock in a corporation with certain legal rights attached.