The Articles should state basic information about the establishment and maintenance of the Board of Directors. Essential elements include how many directors there are to be, whether the number is determined by the Board, and whether there are minimums or maximums to the number. The shareholders can use the Articles as an opportunity to specify any special limitations, expectations, or guidelines under which the board is to operate such as focusing on certain public goods, social responsibility, industries, values, goals […]
In small businesses, decisions are often made without an official meeting of the shareholders or board of directors. An official meeting requires official and formal action by the board or shareholders to identify and certify the proper shareholders, to give proper notice, identifying the meeting purpose, giving time to the attendees, accepting and reviewing proxies, and so on. Seemingly little mistakes can result in the meeting being improper.
Under Colorado law, decisions can be made by shareholders without a meeting, […]
The Articles should specify the necessary number of shares for a quorum of shareholders, as well as the required vote for making various decisions. Generally, quorum will be a majority of the shareholder’s entitled to vote, and a decision will be made by a majority. While a quorum cannot be less than one-third of the shares entitled to vote, quorum and voting requirements can be increased by the Articles, or the Articles can give the Board of Directors the power […]
The Articles should address the scope of authority for indemnification of directors. Specifically, a director of a corporation can be sued for his or her actions as a director, and while some situation will require the corporation to indemnify the director, the statutes do not require indemnification in all situations. Instead, the statutes allow the corporation to indemnify directors in additional situations. Without such a provision, most good independent candidates for a board of director will refuse to take the […]
To the extent there are to be different types of stock (as in a C-Corporation), or there is to be nonvoting stock, the Articles need to specify the amount and type of stock, the rights of the stock, and the authority of the Board to issue the stock. This is a very complicated issue with many potential tax issues to be considered. Be sure to consult with an attorney and accountant as you look at variations on stock classes.
The Articles should address cumulative voting. Cumulative voting is when the number of votes a shareholder has is multiplied by the number of candidates to be elected to an office, such as a director, and the shareholders are allowed to use up their votes over the course of the voting using any number of their votes for each candidate until their votes are gone. In short, the process allows a minority shareholder the ability to accumulate their total number of […]
The Articles should include a statement of the purpose of the corporation. This statement does not have to be extremely specific, but it should not be extremely broad either. Often, people state that their business is organized with the purpose of conducting any and all lawful business. However, this can too easily create a serious conflict that can end up being fodder in a dispute between shareholders, shareholders and the board of directors, and with officers of the company.
To answer this question, it is important to understand that the law is so flexible that the Articles can play different roles including acting in the same way as bylaws, or even as a buy-sell agreement. However, the Articles are public information filed with the Secretary of State and this often creates the boundaries for what incorporators are willing to include, i.e., nothing the corporation does not want to be public.
However, beyond privacy, there are many reasons to think […]
A corporation has a great deal of flexibility in its governing and organizational documents. If the corporation fails to state its choices, it will be subject to the default statutory rules and requirements. Even though the defaults will sometimes be acceptable, many times they are not, or include requirements the corporation does not even know about, understand, or execute.
When dealing with the default statutory provisions, there are a lot to go through and consider. The Colorado Business Corporations Act […]
The list of required provisions in the Articles of Incorporation is an extremely limited list as compared to the provisions that often should be, or could be, in the Articles.
Few laypersons recognize that while there are required provisions, the same statute in CRS § 7-101-102(2) identifies other provisions that “may” be in the Articles of Incorporation. For example, a couple of those categories of discretionary provisions include provisions “[d]efining, limiting, and regulating the powers of the corporation, its board […]