Ohio For-profit Corporations
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 managers and 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).
OHIO REV CODE Chapter 1701. General Corporation Law governs the formation, operation and dissolution of for-profit corporations in Ohio.
A corporation may be formed by any natural person, another corporation (whether nonprofit or for-profit), a partnership, a limited liability company, an unincorporated society or association, and two or more persons having a joint or common interest without regard to residence, domicile, or state of incorporation. Incorporation may be achieved by filing with the secretary of state articles of incorporation which detail: 1) the name of the corporation; the name must include “company,” “co.,” “corporation,” “corp.,” “incorporated,” or “inc.,” and the name must be distinguishable from any other corporation, limited liability company, limited liability partnership, limited partnership, or trade name which is registered with the state or authorized to do business in the state, 2) the place in Ohio where the principal office of the corporation will be located; 3) the authorized number and par value per share of shares with par value, and also the authorized number of shares without par value; the express terms – if any – of the shares, and if the shares are classified, the designation of each class, the authorized number and par value per share – if any – of the shares of each class, and the express terms of the shares of each class; 4) if the corporation is to have an initial stated capital, the amount of that capital; and 5) in addition to the articles of incorporation, a written appointment of a statutory agent shall also be filed with the articles, unless the corporation belongs to a bank, trust company, insurance company, or any corporation defined under the laws of Ohio as a public utility for taxation purposes. The fee to file initial articles of incorporation is $125.
The articles may also (but are not required to) give the names of the initial directors, provide for the period of existence if it is not to be perpetual, or state the purpose of the corporation. A corporation may be formed for any purpose or combination of purposes for which individuals may lawfully associate themselves.
Sample Articles of Incorporation form may be downloaded here: http://www.sos.state.oh.us/SOS/businessServices/Filing Forms Fee Schedule/532.aspx
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.
If the initial directors are named in the articles of incorporation, they shall hold an organizational meeting at the call of a majority of the directors at which they will receive subscriptions and adopt regulations that set forth the rules and procedures governing the operation and management of the corporation consistent with the applicable statutes of Ohio and the articles of incorporation. If the initial directors are not named, then the incorporator(s) shall either receive subscriptions, or hold an organizational meeting at the call of a majority of incorporators in order to elect directors who shall complete the organization of the corporation. If, after 90 days, regulations have still not been adopted, then regulations may only be adopted by the shareholders in the following ways: 1) at a meeting of the shareholders called by the directors (or incorporators, if no directors have been chosen); or 2) without a meeting, by the written consent of the shareholders which entitle them to two-thirds of the voting power.
In general, the regulations 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.
Liability of Shareholders, Directors and Officers
As a corporation is considered to be a discrete legal entity, shareholders are not personally liable for any debts, obligations, or liabilities of the corporation in the absence of a written, enforceable agreement that is signed by the shareholder or subscriber and that specifically acquiesces to liability for such debts, obligations, or liabilities. However, in rare circumstances a court may ‘pierce the corporate veil’ and find a shareholder liable if that shareholder exercised such complete domination and control over the corporation that the corporation had no separate mind or existence of its own, and if such dominance was used to commit fraud or any unjust act, and if the injury or loss complained of was the result of such dominance and wrongful act.
A director is responsible for performing his duties in good faith and may be liable for damages only if it can be proven in court that the director’s action or failure to act was undertaken to deliberately harm the corporation, or was undertaken with reckless disregard of corporate interests.
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
Each corporation must keep records detailing the addresses and number and shares of stock of each of its incorporators, shareholders, and directors. A corporation must also annually provide to its shareholders financial statements consisting of: 1) a balance sheet which summarizes the assets, liability, stated capital, and surplus as of the end of the corporation’s most recent fiscal year; and 2) a statement of profit and loss and surplus from the last such statement ending with the date of the balance sheet, or if no previous such statement exists, from the date of incorporation.
Upon adoption of any amendment or amended articles, a statement describing such an adoption shall be filed with the secretary of state, and must also be communicated to shareholders within twenty days of the filing with the secretary of state. The filing fee is $50.
- Ohio Secretary of State’s Office: http://www.sos.state.oh.us/
- Ohio Department of Taxation: http://www.tax.ohio.gov/