Creating and Organizing Business Documents
There’s a Document For That and You Should Have It In Place.
Most likely your Company is a formal entity: a Corporation or a Limited Liability Company. If it is neither of these, you may want to re-think the structure of your business as you may be exposing yourself to personal liability in the operation of your business. It should be noted that some businesses are structured as General Partnerships or Limited Partnerships, but usually there is a corporate or company structure within the arrangement to limit personal liability. For this overview, we will address the Corporation and the Limited Liability Company and the documents that create them and allow them to operate under New York State Law. Other states have similar requirements with technical differences – so it is important to follow the law of the state in which your entity is created.
Your Corporation or Limited Liability Company is a unique entity, viewed under the law as a ‘person’ separate and apart from its owners. A Corporation is created by, you guessed it, a document. The document is known as the Certificate of Incorporation, and it must be filed with the Secretary of State of the State of New York, accompanied by the requisite fee. Similarly, a Limited Liability Company is created by a document known as Articles of Organization, which also must be filed with the New York Secretary of State, along with its corresponding fee. For either of these filings, you will receive a Filing Receipt from the office of the New York Secretary of State. This Filing Receipt is an important document; it is like the birth certificate for your entity. You will want to keep it in a safe place, along with your Certificate of Incorporation or your Articles of Organization, and bring it out (or a copy) on special occasions, for example when you open a company bank account.
Once your company is created, you will want to specify and document the owners of the company and the portion of the company that belongs to each owner. In a Corporation, the owners are called Shareholders and ownership is measured in Shares. In a Limited Liability Company, the owners are called Members and ownership is measured in Units or Percentage Interest. In a Corporation, Shares are represented (or evidenced) by a Stock Certificate document, and while there may be a similar document representing Units in a Limited Liability Company, such documentation is not required.
For Corporations, the document that establishes the relationship among the Shareholders is known as a Shareholders Agreement. While this document is desirable, it is not required. For the Limited Liability Company, an Operating Agreement sets forth who owns the company, who is authorized to act on behalf of the company, how profits and losses will be shared, and a host of other details as intricate as you like. The Operating Agreement is a required document for a New York Limited Liability Company.
Companies act or take action through those persons (humans) authorized to act on behalf of the company. For a Corporation, there are two levels of authorized persons, Directors and Officers. Directors are elected by the Shareholders, and Officers are appointed by the Directors.
The Directors are responsible for steering the Corporation, formulating or approving long-term goals, appointing or removing Officers, and guiding the Corporation in its major decision-making processes. The Officers run the day to day operations of the Corporation. The basic Officer positions are President, Vice President, Secretary, and Treasurer. Any Officer can bind the Corporation in a contract, but usually that authority is taken by the President or a Vice President.
Shareholders and Directors are, by law, required to hold meetings at least annually, to conduct the business of electing Directors and appointing Officers, respectively. There is formality to these meetings, with notice and quorum (minimum number of persons present) requirements, and notes of what occurred at the meetings are documented in the Minutes of Meeting for each session. The formality of how Shareholders and Directors conduct themselves for calling and conducting meetings are set forth in the ByLaws of the corporation, yet another document, one which is required for Corporations. Officers, once appointed, take day to day actions without meetings.
In a Limited Liability Company, the company may be run by the Members or a Manager or Managers appointed by the Members. The Articles of Organization dictate which, and the Operating Agreement details how the management of the company will be conducted. In either case, the Members will have some measure of control over key decisions for the company. As for meetings, Members should meet at least annually, and if there is more than one Manager, Managers will have regular meetings. For all meetings, Minutes of Meetings should be documented; this is essential for Member meetings.
Sound complicated? At first it may seem so, but like anything else, once you know what you need, the mystery evaporates. Ideally, you and your legal counsel would annually (bi-annually or more often, depending on your business needs) review your company’s activities, address any issues, and document the actions taken.
Below is a summary of the documents discussed above. Become familiar with the ones that relate to your business so you can get and keep your corporate house in order.
For a Corporation
• Certificate of Incorporation
• Filing Receipt
• Shareholders Agreement
• Shares Certificates
• Directors – Minutes of Meetings
• Shareholders – Minutes of Meetings
For a Limited Liability Company
• Articles of Organization
• Filing Receipt
• Operating Agreement
• Units Certificates
• Members – Minutes of Meetings