So you’re considering a new business venture… or have an existing business and want to create a formal entity… or just want personal liability protection.
In these cases and many more, the humble Business Corporation may be your answer. This durable form or organization has been around for over 100 years, so its benefits and limitations are well established.
This Primer will take you through some of the most significant features of the Illinois Business Corporation.
Illinois does not require a corporation to have officers (President, VP, Treasurer) — leaving it up to the Bylaws instead 805 ILCS 5/8.50
The Bylaws provide the number of officers, if any. The election of officers is carried out by the Board of Directors as prescribed in the Bylaws.
Bylaws are the first and last word as to duties and authority of each Officer. For instance
The President typically has implied authority to enter into contracts and act on behalf of Corporation
The Vice President has implied authority to step into President’s shoes when not available and assist with such matters as President may designate
The Corporate Secretary typically certifies Bylaws and Resolutions of shareholders or the Board. Secretary is also the record keeper of the Corporation
The Treasurer’s duties and authority typically include receiving, keeping and accounting for funds
While Meetings and Annual Reports seem like details, the law thinks differently!
According to Illinois law, Annual Meetings are to be held at such time or times as may be provided in the Bylaws
While failure to hold such annual meetings at the designated time will not dissolve the Corporation, such failures make it vulnerable piercing the corporate veil and derivative suits
Accordingly, it is good practice and good sense to make sure that Annual Meetings take place on the specific date set forth in the Bylaws. For instance
Annual Reports must be filed by each and every domestic and foreign corporation authorized to transact business in Illinois 805 ILCS 5/14.05 and must contain the following information:
Annual Report, along with all fees and taxes due, shall be delivered to the Secretary of State 60 days before first day of anniversary month of the Corporation
Secretary of State will file the Report if it conforms strictly to the requirements of the Business Corporation Act: otherwise the IL Secretary of State will mail it back to be corrected and returned in 30 days
Failure to follow the rules of the Illinois Secretary of State may and repeated failure will, result in Involuntary Administrative Dissolution 805 ILCS 5/12.35
Authorized Shares are those the Articles of Incorporation permit the Corporation to issue – that is, a corporation may not issue more stock than the Articles authorize 805 ILCS 5/6.05
Issued Shares are those recorded and sold to shareholders. A corporation may issue various classes of stock conferring different rights on shareholders.
Holder of Preferred Stock entitled to priority payment in the event of liquidation and also entitled to dividends. The # of such shares as well as the classes, series, rights, and preferences, are determined by the Articles of Incorporation or a Resolution of the Board per 805 ILCS 5/6.10
Authorized, un-issued shares of stock remain the property of the Corporation to be issued following a resolution of the Board
Stock Certificates shall be signed by appropriate Officers of the Corporation and may bear the Corporate Seal 805 ILCS 5/6/35
Par Value: consideration paid for the Issued Shares. Traditionally, this was the minimum one could pay to purchase stock and was set forth in the Articles of Incorporation.
Note that in the past shares sold for less than par were considered watered. Directors and/or the Corporation itself were responsible for the difference between par and the sale price; but based on 805 ILCS 5/6.25 and 5/6.30 Illinois has done away with this concept in favor of allowing the price to float and letting the Board determine a price under the auspices of the Business Judgment Rule
Corporate Books: Public policy requires that the records of a corporation shall be kept faithfully in order to protect the rights of stockholders and persons doing business with the Corporation. Ford v Ford Mfg. Co. 222 Ill.App. 76 (1st App. Dist. 1921)
Voting Rights: It is important the Corporation maintain and keep its records current so that its Officers are aware of the voting rights of Shareholders. If, for example, there are Shareholder Agreements and Voting Trusts, a copy of those documents should properly be kept with the Corporate books.
Quorum Requirements: The Corporation should maintain its Record Book along with a current copy of the Bylaws so that the proper Officers are aware of quorum requirements. If quorum requirements are not observed the Corporation may subject itself to a derivative action