Two of the legal requirements to form a corporation in Missouri is the filing of an Articles of Incorporation and the creation of Corporate Bylaws.
The Articles of Incorporation must be filed with the Missouri Secretary of State. More often than not, a corporate name must be picked and listed in the Articles, the duration of the corporation must be designated, the corporate purpose must be articulated, and usually the details regarding the Board of Directors are spelled out. While these requirements may seem innocuous, failure to follow some legal principles can cause serious problems. For instance, if one does not take care in writing the corporate purpose and writes it too narrowly, then it’s possible that the board of directors could open themselves up to an ultra vires suit by shareholders. And if that’s the case, can corporate funds be used to defend the Board against the suit? In other words, is the Board indemnified and held harmless by such suits?
The bylaws is where the day-to-day operations and function of the corporation is addressed. How the Board of Directors are selected is handled here. Under the Board of Directors, there is generally the power for the Directors to create and promulgate corporate officers or committees to further corporate objectives. Further, a thorough and complete set of Bylaws will include conflicts of interest disclosure procedures and ratification protocols. Also, the rights of the shareholders must be addressed. How many meetings can they attend? What classes of stock exist? When will dividends be declared? Who gets to declare the dividends?
Perhaps most importantly perhaps, the Bylaws (and the Articles of Incorporation, too) will include a statement as to whether a corporation wants to be taxed as a S Corporation or C Corporation. A C Corporation experiences double taxation: once at the business level, and then again at the dividend level; a S Corporation experiences pass through taxation — i.e., corporate income isn’t taxed at the business entity level.