Indiana Business Lawyer's Encyclopedia

Articles of Incorporation (Business Corporation)

A business corporation is created when articles of incorporation are filed with the appropriate state official -- in Indiana, the Secretary of State.  Articles must be signed by one or more persons, called incorporators. The Indiana requirements for articles of incorporation, set out in Ind. Code 23-1-21-2, are minimal: the name of the corporation (which must include "incorporated," "inc.," "corporation," "corp.," "company," "co.," "limited," or "ltd."), the number of shares of stock the corporation is authorized to issue, the name and street address of the corporation's registered agent, and the name and address of each incorporator. However, the articles of incorporation may -- and, for good corporate governance, should -- contain other provisions related to the shareholders, directors, officers, and fundamental aspects of the corporation's structure and operation. Once the articles of incorporation are approved by the Secretary of State, the document is part of the public record and easily accessible over the Secretary of State's website.

Related Practice Area: Corporations

Articles of Incorporation (Nonprofit Corporation)

Like a business corporation, a nonprofit corporation's existence begins with the filing of articles of incorporation; however, the content of the articles is controlled by the Indiana Nonprofit Corporation Act of 1991 rather than the Indiana Business Corporation Act. Like the articles of incorporation for a business corporation, the requirements are few:  the name of the corporation (which must include "corporation," "incorporated," "company," "limited," "corp.," "inc.," "co.," or "ltd."); a statement that the corporation is either a mutual benefit corporation, a public benefit corporation, or a religious corporation; the name of the corporation's registered agent and the address of its registered office; a statement that the corporation will or will not have members; and the name and address of each person signing the articles, called incorporators. However, if the nonprofit corporation intends to qualify as tax exempt (and most do), the articles will also need to contain other provisions to satisfy the Internal Revenue Code and IRS regulations.

Related Practice Areas:  Tax Exempt Organizations

Corporation

The corporation is a form of business association that afford the owners protection from being held personally liable for the obligations of the company. Corporations are established by state law -- in Indiana by the Indiana Business Corporation Law. An Indiana corporation is created when an incorporator files articles of incorporation in the office of the Indiana Secretary of State. The articles of incorporation create the fundamental structure of the corporation and establish rules for corporate governance. Corporations issue to their owners shares of stock that give the shareholder certain rights -- generally the right to be paid a portion of the company's profits in the form of periodic dividends, the right to vote in the election of directors to serve on a board, and the right to vote on certain fundamental decisions, such as amendments to the articles of incorporation.

The board of directors is ultimately responsible for the management and operation of the company, even though it may meet only a few times a year, or even just once a year. The board adopts and maintains bylaws with more detailed provisions related to corporate structure and governance, appoints officers, and makes or approves certain decisions that are placed within the board's responsibility and authority by the statute, the articles of incorporation, or the bylaws. In most corporations, the directors are also shareholders. 

In many small businesses with only a few shareholders, all the shareholders are directors. Because the Indiana statute requires only one director, the sole shareholder of a small business often serves as the sole director. 

The officers of the corporation are accountable to the board of directors for the day to day operation of the corporation and management of the business. The number of officers is established by the bylaws or by resolution of the board, but there must be at least one officer. Moreover, a single person can hold more than one office. As a result, the sole shareholder of a small business may also be the sole director and the sole officer.

Related Practice Areas: Corporations

Limited Liability Company

A limited liability company (or LLC) is a form of business association that incorporates some characteristics of corporations and some characteristics of partnerships.  For example, the members (i.e., the owners) of a limited liability company, like the shareholders of a corporation, are not generally liable for the obligations of the company.  On the other hand, the members of a limited liability company can choose to have the right to participate in the management of the company, as well as the authority to sign contracts on behalf of the company, much like the partners in a partnership. 

For limited liability companies formed in Indiana, the characteristics of limited liability companies are established by the Indiana Business Flexibility Act, which established the mechanisms for creating a limited liability company and sets forth rules that govern its management and operation.  Many of the statutory provisions are default rules that can be overridden by the LLC's articles of organization (the document filed with the Indiana Secretary of State at the time of its formation) or operating agreement (an agreement among the members addressing their rights and obligations with respect to the LLC, as well as other aspects of the organization and operation of the business). However, a few provisions of the statute are immutable and cannot be changed by either the articles of organization or the operating agreement.

There are two broad categories of LLC management structure.  An LLC can be managed by its members, in which case the members have the right to participate in the management of the company and have the authority (at least the apparent authority) to make legally binding commitments on behalf of the LLC. Alternatively, an LLC can be managed by managers who are appointed by the members or otherwise in accordance with the terms of the articles of organization or operating agreement.  If a company is manager-managed, the members have fewer rights to participate in the management and control of the company, and the managers, not the members, generally have the authority to make legally binding commitments on behalf of the LLC.  However, all of those aspects are subject to change by either the articles of organization or operating agreement, providing an endless number of opportunities for the members of the LLC to tailor the rules to best achieve their goals.

An LLC also offers the broadest range of possibilities for taxation.  A corporation can be taxed either as a C-corporation, in which the corporation pays income tax on its earnings and the shareholders pay income tax on any dividends they receive, or as an S-corporation, in which the corporation's income is allocated to the shareholders so that the corporation itself does not pay tax but the shareholders pay income tax on their share of the corporation's income.  Like S-corporations, a partnership does not pay income tax itself but rather passes its income through to the partners, who pay tax on their share of partnership income.  Although both S-corporations and partnerships are "pass-through entities," the rules governing them differ substantially. 

An LLC with more than one member has the option of selecting from all three tax schemes:  C-corporation, S-corporation, or partnership.  An LLC with only one member can elect to be taxed as a C-corporation, as an S-corporation, or as a "disregarded entity," which is equivalent to the way that a sole proprietor is taxed on the income produced by the business.

Related Practice Areas:  Limited Liability Companies

Member (of a Limited Liability Company)

The owners of limited liability companies are called "members."  Members of limited liability companies are analogous to shareholders of corporations and partners in a partnership.

Related Practice Areas:  Limited Liability Companies

Member (of a nonprofit corporation)

Under the Indiana Nonprofit Corporation Act, a member of the corporation is a person who has the right to vote in an election of directors on more than one occasion. The statutory definition appears at Ind. Code 23-17-2-17.

Related Practice Areas:  Tax Exempt Organizations

Net Lease

"Net lease" refers to a form of a commercial lease in which the tenant pays base rent plus additional rent that is calculated from the landlord's cost of certain operating expenses.  A net lease assures the landlord of having a rent stream sufficient to cover the landlord's expenses, even if they increase over time.  From the tenant's perspective, a net lease gives a degree of transparency that allows the tenant to make better, more meaningful comparisons of different properties.  "Triple net lease" refers to a net lease in which the landlord's cost of property taxes, insurance, and maintenance of common areas are included in the additional rent.

Related Practice Areas:  Office Leases and Retail Leases

Private Foundation; Public Charity

Charitable organizations that are exempt from income taxes under Section 501(c)(3) of the Internal Revenue Code are further categorized as either private foundations or public charities.  Public charities derive a specified amount of their financial support from public sources -- broad-based contributions, from other public charities, or from government entities.  Any charitable organization that is not a public charity is a private foundation and subject to more stringent regulations.  See the IRS web site for a description of the Life Cycles of a Private Foundation and a Public Charity.

Related Practice Areas:  Tax Exempt Organizations

Share (of stock)

Stock issued by a corporation is divided into units called shares. The number of shares an Indiana corporation is authorized to issue is set forth in the articles of incorporation; however, the number of shares authorized is merely the maximum number of shares that can be issued without amending the articles. The number of shares a corporation has actually issued may be considerably less. A corporation can have more than one class of stock, with each class having different rights with respect to voting, payment of dividends, or other rights; however, every share of stock of a particular class has the represents rights as all other shares of the same class.

Related Practice Areas: Corporations

Shareholder

The owners of a corporation are called shareholders, or sometimes stockholders.

Related Practice Areas: Corporations

Stock

Stock is a form of intangible personal property that represents ownership of a corporation.

Related Practice Areas: Corporations

Trade Secret

A trade secret is a form of intellectual property.  Unlike the other major forms of intellectual property -- patents, copyright, and trademarks -- which are primarily matters of federal law, trade secrets are almost entirely governed by state law.  Indiana, like many other states, has adopted the Uniform Trade Secret Act (Indiana's statute is at Ind. Code 24-2-3, which defines a trade secret as information that (1) has independent economic value from the fact that the public does not generally know the information and cannot readily obtain the information and (2) is the subject of reasonable efforts to maintain its secrecy.  

The idea behind all intellectual property (in fact, all property rights of any sort) is that the person who owns the intellectual property right can prohibit others from doing something with that property.  For example, the owner of a patent to an invention can prohibit others from making, using, importing, selling, or offering to sell the invention.  The owner of a trade secret can the acquisition of the information by improper means or the unauthorized disclosure or use of the information.  

Related Practice Areas:  Confidentiality Agreements