30 Must-Know Corporate Law Answers for Business Owners

Business Formation and Structure

What is a corporation?

A corporation is a legal entity, separate from its owners, that provides for limited liability and allows capital raised through stock.

How do I choose the best business form?

Consider your liability, taxation, funding needs, and management preferences. LLCs are flexible while corporations are best for scaling.

What is the difference between C-corporations and S-corporations?

C-corps are taxed separately from owners, while S-corps have pass-through taxation but stricter ownership requirements.

Also read:

What are articles of incorporation?

A legal document filed with the state to establish your corporation, including details like name, purpose, and registered agent.

What are corporate bylaws?

Internal rules governing how your corporation operates, including meetings, voting, and dispute resolution.

Corporate Governance

What is the role of the board of directors?

The board supervises corporate policies, major decisions, and ensures compliance with the law, always acting in the best interest of shareholders.

What is a shareholder agreement?

A shareholder agreement is a contract that defines the rights, responsibilities, and terms for the transfer or sale of shares.

What is the difference between shareholders and directors?

Shareholders own the company, whereas directors are high-level decision-makers and overseers of management.

What is the fiduciary duty of directors?

Directors must act in good faith, with care, and in the best interests of the corporation and its shareholders.

Do small corporations need regular board meetings?

Yes, corporations must hold regular meetings to document major decisions and maintain compliance.

Corporate Compliance

What are annual reports?

Filings that update the state on your corporation’s activities, ensuring it remains in good standing.

What happens if my corporation doesn’t comply with regulations?

Penalties may include fines, loss of good standing, or even dissolution of the business.

What is a registered agent?

An individual or entity designated to receive legal and tax documents on behalf of the corporation.

What is the importance of keeping business records?

Accurate records demonstrate compliance, facilitate audits, and protect against liability.

Can personal and business finances be mixed?

No. Mixing finances can lead to piercing the corporate veil, exposing owners to personal liability.

Contracts and Agreements

Do I need written contracts for every business deal?

Yes, to clarify terms, avoid misunderstandings, and provide legal protection in case of disputes.

What is a non-disclosure agreement (NDA)?

A contract protecting sensitive business information shared between parties.

What happens if a business contract is breached?

The injured party can seek remedies like monetary damages, contract termination, or specific performance.

What is a partnership agreement?

A memorandum of partnership. This document indicates the roles of partners, roles and responsibilities each partner shall bear, profit-sharing, and mode of resolving disagreements.

What are intellectual properties and how can they be protected?

It includes trademarks, patents, copyrights, and trade secrets. Keep it protected via registrations and Non-Disclosure Agreements.

Corporate Financing

How does one acquire capital for my corporation?

Is there an issuance of stock, getting loans, sourcing venture capitals or crowdfunding.

Distinguish debt versus equity financing:

Debt financing is borrowing money–loan. Equity financing is issuing shares of your business.

Do I have to issue stock certificates?

Formal documentation of ownership; important for accounting records, but not always legally required.

What’s a corporate bond?

A type of debt security issued by companies to raise money with an expectation of being repaid with a specified rate of return in the form of interest

What are the risks of taking investors?

Loss of control, dilution, and added strain on achieving financial goals.

Dissolution and Legal Risks

What is the procedure for dissolving a corporation?

File articles of dissolution, pay off debts, distribute residual assets, and notify all authorities concerned.

What is piercing the corporate veil?

A legal doctrine wherein the courts can hold shareholders liable if they misuse the corporation by intermingling personal and business finances.

What happens if my corporation is sued?

The assets of the corporation are exposed, but owners are generally protected unless the corporate veil is pierced.

What is liability insurance, and why is it important?

Liability insurance shields your business from loss resulting from litigation or claims over property damage or injury.

What is bankruptcy, and how does it affect corporations?

Bankruptcy lets a firm reorganize its debt structure (Chapter 11) or sell off some of its assets to pay back creditors (Chapter 7).

These are basic corporate law issues for any business owner to know.