How do the people who run the corporation (directors, officers) figure out what the rules of an Oklahoma corporation are? 

One source of this information is the Oklahoma corporation’s bylaws.  According to Ms. Merriam-Webster, bylaws are defined as “a rule adopted by an organization chiefly for the government of its members and the regulation of its affairs.”

The bylaws are the corporation’s constitutional documents that among other things, may contain provisions relating to the business of the corporation, the conduct of its affairs, and its rights or powers or the rights or powers of its shareholders, directors, officers or employees.  Title 18 O.S. section 2013. 

Have you ever wanted to know whether you dealing with a legitimate entity?  That is, a real corporation or real LLC?

For companies based in Oklahoma, finding out the legitimacy is snap, by doing a free search on the Oklahoma Secretary of State’s Website.  You can get to the site here and below I recorded a short screencast to walk you through the search process step by step.

In a previous Blog Post, I talked about why a corporation ends up being suspended by the Oklahoma Secretary of State.  This Post discusses some of the consequences for a suspended corporation.

The Oklahoma Tax Code provides for multiple penalties if a corporation’s charter is suspended:

• The directors and officers become liable for any and all debts of the corporation incurred or created with their knowledge, approval, and consent as if the directors and officers were partners;
• Any contract entered into by the corporation during the suspension is voidable;
• A court cannot grant to the corporation any legal relief in a lawsuit until the corporation is “reinstated” (meaning back in good standing); and
• The corporation loses its right to sue or defend in any court of this state, except in a suit for forfeiture of its charter.
  MONCRIEFF-YEATES v. KANE 

The upshot of these penalties is that you may lose the protection from the Wall of Separation I mentioned in this Blog Post. Needless to say, if you do business through a suspended corporation, you lose a lot of the protection the corporation normally provides and subject yourself to substantial but unnecessary legal risk.

View along Adelaide Street from George Street with the buildings decorated for the Royal Visit, 1954 https://www.flickr.com/photos/statelibraryqueensland/

The Oklahoma Secretary of State is the record keeper for among other things Oklahoma corporations and Oklahoma limited liability companies.  To form a corporation, you submit paperwork to the Oklahoma Secretary of State.  To form and maintain a limited liability company, you also submit paperwork to the Oklahoma Secretary of State.  So, as you might expect, the Oklahoma Secretary of State keeps records about whether a corporation is in good standing, suspended, or terminated.

Reasons an Oklahoma corporation is suspended
You may have searched the Oklahoma Secretary of State’s records and found a corporation you own and discovered that the corporation was “suspended.” The suspension is usually connected to the Oklahoma Tax Commission.  Corporations are usually suspended because either the owners have failed to file an annual Oklahoma Franchise Tax Return and/or failed to pay the franchise tax. Sometimes corporations are suspended for failure to file an Oklahoma corporation income tax return:

–> Failure to file Oklahoma Income Tax Return
According to the Oklahoma Tax Commission, any corporation doing business within or deriving income from sources within Oklahoma is required to file an Oklahoma Corporation Income Tax Return, whether or not a tax is due.

–> Failure to file a franchise tax return
The Oklahoma Tax Commission says: Oklahoma Franchise Tax is due and payable July 1 of each year unless a Franchise Election Form (Form 200-F) has been filed. The report and tax are delinquent if it not paid on or before September 15. 

How is a corporation’s charter suspended?
If a corporation fails to pay the required franchise tax, the Oklahoma Tax Commission enters an order suspending the corporation’s charter and then send the order to the Oklahoma Secretary of State directing that the corporation be suspended.

STS-114 Thermal Protection System from NASA on The Commons

I advise people to form an entity, such as a corporation, to provide protection for them from the liability their business can create.  You can read more about individual liability and why you need to protect yourself from individual liability in this Blog Post.

The protection from individual liability for the people who own the company is one of the essential benefits of having a corporation. 

Example
Think in terms of a landscaping business that accidentally hits a gas line leading to people being injured and the property being destroyed.  The landscaping business is going to be responsible for huge damages.  But, if the landscaping business was working through a corporation, there is a good chance that the liability will stop with the corporation and not bleed into the corporation’s owners’ assets.  If the owners were operating the business without a corporation or Oklahoma limited liability company, as sole proprietors, the owners’ assets would be at risk of being taken to pay the damages from the accident (liability insurance coverage might limit the owners’ risk in this scenario). 

The Wall of Separation
I refer to this protection as the “wall of separation.” The corporation (or in many cases the Oklahoma LLC) is the “wall” between the individuals who own the company and the liability created by the company.  On one side of the wall rest the owners’ assets and on the other side of the wall sit all the unknown liabilities that come from operating a business. 

When is the wall’s protection lost?
One way the wall breaks is when a corporation’s charter is suspended.  

This is one of the questions I hear often, particularly because services like Legal Zoom make so much hay with pricing. So I thought to myself: Why not share my pricing, plus what you actually get for the price?

While this isn’t the price in every case because some cases are different, this scenario covers most situations.

My price for a forming an Oklahoma corporation is typically $800.00. What do you get for this price?

Certificate of Incorporation.    The Certificate of Incorporation contains the basic information about the corporation:  Name, Resident Agent, and the initial directors of the company and are filed with the Oklahoma Secretary of State.

By-laws. The By-laws are the most important document of the corporation.  They govern the management of the corporation, the allocation and distribution of profits, duties of officers, directors and shareholders, voting, procedures for transfers of stock and various tax related matters.  The by-laws can enhance the asset protection features of the corporation, or it can weaken them depending on the provisions.

Meeting Minutes. Meeting Minutes memorialize decisions made by the directors and shareholders of the corporation, both to get the company going and to maintain it each year.

Tax ID & Elections. In most circumstances, a corporation requires a Tax ID Number from the IRS.  Essentially, it is the equivalent of a social security number for the corporation.  Bank accounts should be opened with this Tax ID and all corporate business should be conducted under this Tax ID.

Stock Certificates/Transfer Ledger.   Stock Certificates manifest ownership in the corporation.  A corporation does not have shareholders until shares of stock are issued.  That means that there must be some manifestation of intent to issue the shares of stock, either in the Meeting Minutes or in the signing of the Certificates.

Standard Employment Agreement. It pays to have it in writing with your employees. This way, both the employer and the employee know what the deal is. You can do this with the Employment Agreement which has been tested and refined in many scenarios.

Standard Independent Contractor Agreement.  Most small businesses use the services of independent contractors.  As with the employment relationship, it is helpful to document the Independent Contractor relationship in writing.  You can achieve this with the simple Independent Contractor Agreement I provide.

Free Telephone Calls. As you get your business up and running, you need some more guidance on legal issues. I am happy to provide some help by talking to you on the telephone for no charge, for the first six months after we set up the company.

A few months ago I wrote about forming an Oklahoma not-for-profit corporation, starting with Oklahoma and then securing recognition from the IRS that the corporation is tax exempt. In that post, I mentioned a checklist and offered a copy to anyone who wanted it. The checklist has now morphed into a mind map and, again, anyone who wants a copy is welcome to have it.

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The term “not for profit” is used so loosely that sometimes the lines between a company that has no profit motive and a company that the IRS has determine is tax exempt, gets blurred. Anyone can start a company that is not for profit. But there is substantially more work and focus required to start a company that is not for profit and actually get the IRS to recognize it (meaning, for one thing, that donations are tax deductible.

In helping people put together companies like this, I have created a list that broadly outlines the steps to consider when creating an Oklahoma not for profit company.  If you would like a copy of the list, please let me know by email at sjr@shawnjroberts.com and I will email it to you.