Business incorporation is a process in which a business becomes officially registered as a corporation. Businesses that have undergone incorporation have a different legal status than non-incorporated entities. For example, corporations are subject to different tax consequences because they are legally considered to be an “individual person” under law.
Thus, business incorporation may be desirable to some companies that are seeking various protections and rights under business laws. However, the incorporation process can sometimes be very complex, and may often involve distinct types of legal and business disputes. There are also many different types of corporations, which may have different filing requirements.
Legal disputes and contentions are somewhat common during the business incorporation phase. This is because there are so many different steps and requirements to be fulfilled in relation to incorporation. Some common business incorporation disputes may involve:
- Selection of the name: Selecting the proper name is important for the success of the business.The members need to make sure that the corporate name isn’t already being used by another business. Also, the name should allow for maximum exposure and profitability for the entity.
- Choice of directors: Every corporation needs to appoint a board of directors who will make important decisions on behalf of the company. There can be disputes over who is appointed as a director. Disputes can also involve the rights and duties of directors.
- Choice of registered agent: The corporation will also need to appoint a registered agent who can sign for the company on important documents. This person should be selected carefully in order to ensure that they don’t abandon their role down the road.
- Issues with the Articles of Incorporation: The articles of incorporation state important goals and information related to the corporation. This needs to be carefully drafted and is usually written by an experienced business lawyer. Any disputes should be resolved before the articles are finalized in writing.
- Meetings: The organization needs to decide how often meetings should occur, and how many members need to be present for a gathering to be considered a “meeting”. Also, the organization needs to set forth rules for “special meetings”, which are held for important matters such as voting.
- Securities issues: The issuance of stock is perhaps the single most contentious aspect of incorporation. Disputes can arise over the member’s rights in stock. Also, there may be disagreements in terms of how stocks are classified, such as preferred, common, etc.
There can be many other types of disputes depending on the nature of the corporation. Many of these disputes can be avoided through proper business planning. Disputes can sometimes be resolved through alternative measures like mediation. However, in serious cases a lawsuit may become necessary, especially where a party’s legal rights have been violated.
Business incorporation laws can be very different depending on the state and the nature of the organization. Many organizations experience disputes during incorporation which require the assistance of a competent business attorney. An experienced business lawyer will be able to provide you with advice and representation in court so that your dispute is resolved efficiently. Or, you may wish to contact a lawyer at the outset, so that they can help you avoid incorporation disputes in the first place.