Corporations can be structured in a variety of ways but each business requires its own form based on its own particular circumstances. In the beginning stages of forming a company, it is vital to consult the state’s applicable corporate law. Because Delaware developed body of case law and lenient attitude towards upper management, many companies are based out of that state. However, many states, including Florida, follow the Model Business Corporation Act (MBCA) which provides the general rules of corporate structure.
One way to think of the articles of incorporation is to imagine it is the Constitution while the bylaws are akin to statues passed by Congress. Generally, after the incorporators file the articles of incorporation, they have a meeting to vote on a board of directors. This decision is of vital importance because the board is the usually the central source of decision making and authority within a company. The board of directors is usually the only group that may propose amendments to articles of incorporation which make them much harder to amend than the bylaws. Thus, the articles are designed to give consistency to a company and help protect minority shareholders.
After the directors are elected, the board must decide how many shares to issue which can vary depending on the type of company. Because the shareholders are the “owners” of the company, they too are not without power. Generally, shareholders as a whole have a right to propose bylaws even if board of directors disagrees. While shareholders and the board can both amend the bylaws, the board can be limited by a provision in the articles of incorporation. However, unless that provision happened to be in articles at incorporation, it is unlikely that the board will agree to such a limited rule. Nonetheless, when shareholders amend a particular bylaw, they can propose that the board cannot amend without shareholder approval. On the other hand, there cannot be bylaw amendment that completely limits the board’s ability to amend the bylaws.
Furthermore, shareholders must have the right to vote and right to receive assets upon dissolution of company. While companies can give rights to different groups of shareholders, preferred stock typically has no or limited voting rights but has preference in receiving assets upon dissolution. This means that preferred stock holders can get paid before creditors if the company goes bankrupt. It is contractual relationship between the shareholder and company, but it is not required. Conversely, common shares combine both residual claimant status and voting rights. While common shareholders may not receive any return if the company goes bankrupt, they do have significant voting rights that influence major decisions.
Because corporations come in all shapes and sizes, an experienced attorney is essential when thinking about formation or reorganization. At Lanigan and Lanigan, attorneys Eric and Roddy Lanigan understand that it takes planning, foresight, and strategy to form or reorganize a company. Whether you’re a small commercial operation looking to set up a business or a corporation facing financial distress, call Lanigan and Lanigan, in Winter Park, Florida.