Creating & 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, you may want to re-think the structure of your business — you could be exposing yourself to personal liability in its operation. Some businesses are structured as general or limited partnerships, but usually there is a corporate or company structure within the arrangement to limit personal liability. For this overview, we'll 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.

The documents that create your company

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, known as the Certificate of Incorporation, which must be filed with the New York Secretary of State along with the requisite fee. Similarly, a Limited Liability Company is created by a document known as the Articles of Organization, also filed with the New York Secretary of State with its corresponding fee.

For either filing, you'll receive a Filing Receipt from the office of the Secretary of State. This Filing Receipt is an important document — it's like the birth certificate for your entity. Keep it in a safe place, along with your Certificate of Incorporation or Articles of Organization, and bring it out (or a copy) on special occasions, such as when you open a company bank account.

Documenting ownership

Once your company is created, you'll want to specify and document the owners and the portion of the company that belongs to each. 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 evidenced by a Stock Certificate; while there may be a similar document representing Units in an LLC, such documentation is not required.

For Corporations, the document that establishes the relationship among the Shareholders is the Shareholders Agreement. While 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 its behalf, how profits and losses will be shared, and a host of other details as intricate as you like — and it is a required document for a New York LLC.

How companies act

Companies act through the persons authorized to act on their behalf. For a Corporation, there are two levels: Directors and Officers. Directors are elected by the Shareholders; Officers are appointed by the Directors.

The Directors steer the Corporation — formulating or approving long-term goals, appointing or removing Officers, and guiding major decisions. The Officers run day-to-day operations. 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 exercised by the President or a Vice President.

Shareholders and Directors are required by law to hold meetings at least annually — to elect Directors and appoint Officers, respectively. There is formality to these meetings, with notice and quorum requirements, and a record of what occurred is kept in the Minutes of Meeting for each session. How Shareholders and Directors call and conduct meetings is set out in the ByLaws — yet another document, and a required one 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 by a Manager or Managers appointed by the Members. The Articles of Organization dictate which, and the Operating Agreement details how management will be conducted. In either case, the Members retain some measure of control over key decisions. Members should meet at least annually, and where there is more than one Manager, the Managers will meet regularly. For all meetings, Minutes 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 review your company's activities annually (or more often, depending on your needs), address any issues, and document the actions taken.

Corporate housekeeping

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.

Rosemarie Tully, P.C. — counsel to the creative