The for-profit form of organization can and frequently is used as a vehicle for conducting a business that also has a social mission or objective. Although for-profit corporations are usually formed for the purpose of making money and distributing it to shareholders, there is no reason why a for-profit corporation cannot include a social mission in the purposes clause of its articles of incorporation.
While such a provision would authorize the corporation to pursue social objectives, it would not require the corporation to do so—only the shareholder/ owners have this power. And unless all shareholders agree to pursue social aims, dissenters could sue the corporation’s directors and managers for failing to operate the corporation in the best economic interests of the shareholders.
A shareholders’ agreement is probably the best way to address this problem. Such an agreement, entered into by all shareholders and the corporation, would require the corporation to be managed and operated so as to pursue specified social objectives thereby overriding fiduciary duties and similar legal principles that govern “normal” behavior of for-profit corporations.
But even the most skillfully drafted shareholders’ agreement is not a perfect solution because agreements can always be abrogated and amended and the owners of the shares can change via sale, gift or inheritance. Moreover, a tightly drafted shareholders’ agreement which makes it difficult to respond to business changes over time would tend to render the for-profit corporation much less attractive to investors (potential new shareholders).
A for-profit corporation may be formed by one or more persons or a domestic or foreign corporation by signing and delivering an original and a copy of the corporation's articles of incorporation, which may be a photocopy of the original after it was signed or a photocopy that is conformed to the original, to the PRC.
The articles of incorporation must contain: the name of the corporation; the period of duration, if other than perpetual; the purpose for which the corporation is organized which may simply be stated as the transaction of any lawful business for which corporations may be incorporated under the Business Corporation Act; the aggregate number of shares the corporation has authority to issue and, if the shares are to be divided into classes, the number of shares of each class; if the shares are to be divided into classes, the designation of each class and a statement of the preferences, limitations and relative rights in respect of the shares of each class; any provision limiting or denying to shareholders the preemptive right to acquire unissued shares; the address of its initial registered office and the name of its initial registered agent at the address; the names and addresses of the persons who have consented to serve as directors; and the name and address of each incorporator.
In addition, the articles of incorporation may contain provisions not inconsistent with law regarding: the direction of the management of the business and the regulation of the affairs of the corporation; the definition, limitation and regulation of the powers of the corporation, the directors and the shareholders, or any class of the shareholders, including restrictions on the transfer of shares; the minimum consideration for any authorized shares or class of shares; and any provision that, under the Business Corporation Act, is required or permitted to be set forth in the bylaws. Furthermore, the articles of incorporation may set forth any provision that the incorporators elect to set forth for the regulation of the internal affairs of the corporation.
Management and Control
A for-profit corporation has a hierarchical control structure. It is managed by or under the direction of a board of directors and its officers, although its shareholders vote on important corporate issues, such as election of directors, mergers, sale of all assets and dissolution.
Similar to a nonprofit corporation, once the for-profit corporation has been established, the initial board of directors meets (in person or by consent), ratifies the acts in connection with initial formation of the corporation and adopts bylaws which set forth the rules and procedures governing the operation and management of the corporation consistent with the applicable statutes of New Mexico and the articles of incorporation.
In general, the bylaws of a for-profit corporation contain provisions governing director and officer qualifications, powers and duties; voting; meetings of shareholders, directors and officers; filling of vacancies; committees; property holding and transfer; indemnification of directors and officers; bank accounts; fiscal year audits and financial reports; conflicts of interest; and amendment, merger and dissolution procedures.
All corporate powers shall be exercised by or under authority of, and the business and affairs of a corporation shall be managed under the direction of, a board of directors. If any such provision is made in the articles of incorporation, the powers and duties conferred or imposed upon the board of directors by the Business Corporation Act shall be exercised or performed to such extent and by such person or persons as provided in the articles of incorporation. Directors need not be residents of this state or shareholders of the corporation unless the articles of incorporation or bylaws so require. The articles of incorporation or bylaws may prescribe other qualifications for directors. The board of directors may fix the compensation of directors unless otherwise provided in the articles of incorporation. A director shall perform his duties as a director, including his duties as a member of any committee of the board.
To see an example of bylaws, visit http://www.lectlaw.com:forms:f151.htm.
Liability of Shareholders, Directors and Officers
A holder of or subscriber to shares of a corporation has no obligation to the corporation or its creditors with respect to the shares other than the obligation to pay to the corporation the full consideration for which the shares were issued or to be issued.
No person who becomes an assignee or transferee of shares or of a subscription for shares in good faith and without knowledge or notice that the full consideration has not been paid shall be personally liable to the corporation or its creditors for any unpaid portion of the consideration. No executor, administrator, conservator, guardian, custodian, trustee, assignee for the benefit of creditors or receiver shall be personally liable to the corporation as a holder of, or subscriber to, shares of a corporation but the estate and funds in his hands shall be so liable. No pledgee or other holder of shares as collateral security shall be personally liable as a shareholder.
Directors are fiduciaries who owe a duty of care and loyalty to the corporation. The duty of care requires directors to manage the corporation to the best of their abilities, meaning directors must discharge their duties in good faith, with the care that an ordinarily prudent person in a like position would use, and in a manner they reasonably believe is in the best interests of the corporation. The duty of loyalty generally means that directors may not profit at the expense of the corporation. A director who breaches his or her fiduciaries duties may be held liable to the corporation for the damages his or her actions caused. Furthermore, a director who votes for distribution from the corporation in violation of law or the articles of incorporation is liable to the corporation for the amount of the payment that exceeds what could have been paid without violating the law of the articles. Corporations may eliminate or limit the liability of their directors for breach of a fiduciary duty. However, the corporation may not, for example, eliminate or limit the a director’s liability for acts made in bad faith, intentional misconduct, or breaching the duty of loyalty.
Officers have similar fiduciary duties as directors. Officers must carry out their duties in good faith, with the care an ordinarily prudent person in a like position would use, and in a manner reasonably believed to be in the best interests of the corporation.
For-profit corporations (and LLCs) offer the most flexibility in raising capital, ranging from various kinds of equity (common stock, preferred stock, options, warrants) to numerous types of debt instruments (convertible notes, subordinated notes, bonds, commercial paper).
Recordkeeping and State Reports
The corporation must keep correct and complete books and records of account and shall keep minutes of the proceedings of its shareholders and board of directors, and shall keep at its registered office or principal place of business, or at the office of its transfer agent or registrar, a record of its shareholders, giving the names and addresses of all shareholders and the number and class of the shares held by each. Any books, records and minutes may be in written form or in any other form capable of being converted into written form within a reasonable time.
Nothing shall impair the power of any court of competent jurisdiction, upon proof by a shareholder or holder of voting trust certificates of proper purpose, irrespective of the period of time during which the shareholder or holder of voting trust certificates shall have been a shareholder of record or a holder of record of voting trust certificates, and irrespective of the number of shares held by him or represented by voting trust certificates held by him, to compel the production for examination by the shareholder or holder of voting trust certificates of the books and records of account, minutes and record of shareholders of a corporation. Each corporation shall provide its shareholders access to at least a balance sheet as of the end of each taxable year and a statement of income for such taxable year, if the corporation prepares such financial statements for such taxable year for any purpose.
The corporate income tax imposed by New Mexico on corporations shall be at the rates specified as follows:
If the net income is: Not over $500,000 -- The tax shall be 4.8% of net income
If the net income is: Over $500,000 but not over $1,000,000 -- The tax shall be $24,000 plus 6.4% of excess over $500,000
If the net income is: Over $1,000,000 -- The tax shall be $56,000 plus 7.6% of excess over $1,000,000
The corporate franchise tax amount imposed is fifty dollars per taxable year or partial taxable year.
To the extent permitted by law, no corporation shall be relieved from liability for corporate income tax or corporate franchise tax by reason of receiving income from transactions occurring or work or services performed within a federal area.
Starting Business in New Mexico, http://www.rld.state.nm.us/OS/PDF’s/startingannmbusiness.pdf
Starting and Operating Business in New Mexico, http://www.roninsoft.com/states/nm.htm - II(d)
Uniform Division of Income for Tax Purposes Act
New Mexico Business Corporation Act [Chapter 53, Articles 11-18 NMSA 1978]
Internal Revenue Code (26 USCS § 901)