Fitzgibbons Law Offices - Pinal County Lawyers

520-426-3824

 
 
 
Tina Vannucci, Casa Grande Business Attorney

 

Fitzgibbons Law Offices
1115 E. Cottonwood Lane
Suite 150
Casa Grande, AZ 85122

 

Business Law

June 2015

Formation of an Arizona Corporation

Choosing which type of legal entity to form is one of the most important decisions to make when starting a business. This article examines the corporation, which is a popular choice for an Arizona business entity, especially when a desire or need exists to issue corporate stock.

A corporation is a separate legal entity formed through a registration process giving it distinct legal rights and liabilities. Corporations can be established as either profit-seeking companies or non-profit companies and are generally owned by shareholders and controlled by a board of directors. Arizona’s corporation statutes provide basic rules to govern the rights and obligations of a corporation and its directors and shareholders.

Formation

To form a corporation, Articles of Incorporation are filed with the Arizona Corporation Commission. Once approved, the Articles are published in a newspaper approved by the Commission. The Articles of Incorporation set forth the name and address of the corporation, its general purpose, the duration of the corporation (if it will not be perpetual), the incorporators, the number of directors, the names of the initial board of directors, the statutory agent, the amount of stock authorized to be issued, and whether the company will be classified as a subchapter S or subchapter C pursuant to the Internal Revenue Code. For a non-profit corporation, the Articles of Incorporation should also set forth necessary restrictions on the activities of the company and the transfer of assets upon its dissolution.

Officers and Directors

In addition to the Articles of Incorporation, each officer, director, trustee or incorporator who holds more than a 10% interest in the corporation must file a Certificate of Disclosure. The Certificate of Disclosure sets forth whether such individuals have been convicted of certain felonies; subject to an injunction, judgment, decree or permanent order for certain actions; or involved in certain bankruptcy proceedings.

There are no minimum limits on the number of incorporators, shareholders, members or directors for a corporation. Therefore, one person may start a corporation and serve as the sole incorporator, shareholder, director and statutory agent, or there may be several incorporators, shareholders and directors involved. However, a corporation needs to be aware of several rules and regulations that may apply once certain stock thresholds are met. Such laws include, but are not limited to, the Securities Exchange Act of 1934 and the Sarbanes-Oxley Act of 2002.

Directors and officers need to be aware of their statutory duties to the corporation. Although generally exempt from liability, directors and officers may be liable for corporate action or inaction that is not done in good faith. The “business judgment rule” presumes that directors and officers act in good faith, but this presumption may be overcome by clear and convincing evidence showing that good faith was not exercised. If such presumption is overcome, the director or officer may be held personally liable for their actions.

Governance

Once a corporation is established, the directors should but are not required to approve bylaws that govern the functions of the corporation, including meeting procedures, roles and responsibilities of the directors and officers, rules and restrictions related to the issuance and transfer of corporate stock, dissolution, and dispute resolution.

Corporations are statutorily required to hold annual meetings and file annual reports with the Arizona Corporation Commission. Depending on the bylaws, it may also be necessary for a corporation to hold special meetings of the shareholders and/or directors to conduct company business. Any actions not specifically authorized by Arizona statute or the bylaws should be approved by the shareholders and/or directors.

It is important for individuals wanting to form a corporation to decide at the outset how the affairs of the business and the individuals involved will be addressed. Having such foresight will assist the corporation when dealing with any unanticipated matters or disputes.

Related article: Business Entity Formation in Arizona

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