Corporate Basics

Everyone starting a business seems to know that they need to form a corporation. In New York the formation of a corporation is a fairly easy thing to do. Creating a corporation in New York can easily be done through a filing with the New York Secretary of State.

What most people do not understand is what to do with a corporation once it is formed. When the corporation is formed, you receive a handsome book with a case, called "the corporate kit." It contains a number of blank forms, and many official, and blank stock shares. Upon receipt of this corporate kit, most business owners place it upon their shelf and forget about it.

This is a dangerous mistake.

A corporation, in order to be used effectively must be used properly. Failure to abide by the corporate forms and formalities can result in the business owner being found personally liable for a debt or obligation.

The purpose of the corporation is to create an artificial person. The artificial person, the corporation, signs the contracts and holds both the liabilities and assets of the business. The business owner, when he uses the corporation properly, is shielded.

For example, Widget Co. is sued when one of it's delivery van hits another car. Since Widget Co. is a corporation, the owner and sole shareholder cannot be sued. Or, Mr. Shareholder, as president of Widget Co. signs a contract with Buyer. Buyer claims that the contract was breached and he sues. He cannot sue Mr. Shareholder, but can only sue Widget Co.

Unfortunately, if the corporate forms are not followed, the owner of the business can be personally sued. In law we call it "piecing the corporate veil." And it can be done.

For example, Mr. Port sued to collect a judgment against a corporation. The corporation stated that it had gone out of business, and that Mr. Port's clients would be unable to collect the judgment. At trial, Mr. Port showed that the corporate forms were not obeyed. The court agreed and found the two shareholders personally liable for the judgment.

At Port and Sava we understand how to structure a corporation to protect your interests. From initial set up to annual legal check ups, we will guide you, step by step, to protect your hard earned assets.