How to Run a Corporation
After you have successfully registered your corporation and ensured that you have complied with all of the required state and federal regulations, you will need to know how running a corporation actually works. This is especially critical from a finance, internal management, and marketing standpoint.
Corporate Formalities and Meetings
It is very important to adhere to the formalities of running a corporation. In order to protect your personal assets, and not allow creditors or municipalities to pierce your corporate veil, you must:
- Maintain up-to-date bylaws
- Set up a corporate records book
- Hold required annual meetings
- Give notice of meetings when applicable
- Keep accurate meeting minutes
Maintain Your Corporate Bylaws
You must maintain up-to-date bylaws to protect your corporate veil.
If you want to amend a section or article of your corporation’s bylaws, you must call a special meeting with the board of directors. During this meeting, a copy of your proposed changes should be distributed to the board members. Depending on your bylaw structure, either a majority vote or minimum vote will be required to pass the amendment.
After the first meeting, notices must be sent to the corporation’s shareholders. A second meeting will need to be held with all voting parties to either approve or disapprove your proposed amendments.
Set up a Corporate Records Book
Think of this as the hard-copy record book where all critical corporate documents are kept, like your Michigan Articles of Incorporation, bylaws, meeting minutes, stock certificate ledger, stock transfer documents, etc.
You should keep the corporate records book at your principal location. Corporate records book kits can be purchased online, or you can use a large generic binder to store your records.
Hold Periodic Board Meetings and Record Minutes
You must hold regular corporate meetings to maintain your business's management structure.
Annual Shareholders' Meeting
In most states, corporations are required to hold an annual shareholders' meeting. The first annual shareholders' meeting should occur soon after formation. During this meeting, the shareholders elect the board of directors. Your corporate bylaws should note the date of your annual shareholders’ meeting.
Corporations might also need to conduct “special” board of director’s meetings. These meetings are called to discuss important business matters that will affect the corporation. Your state may have unique meeting notice requirements for special meetings.
Notice of Meetings
If your corporation has more than one shareholder, you will need to provide formal notice of meetings to owners (shareholders), employees, and officers before the meeting occurs. The notice must provide the following information:
- Whether the meeting is a regular or special meeting
- Where the meeting will be held
- When the meeting will occur
When a meeting must be held at the last minute, without formal notice of the meeting, a waiver of notice must be signed by all eligible people stating that they are giving up the right to receive formal notice as laid out in the bylaws and formation documents.
Meeting minutes are legally required in many states. Well-recorded minutes are indispensable during disputes and court actions.
For single-shareholder corporations (common for small business owners), minutes general only need to record the following:
- The date of the meeting
- A note that it was a joint meeting of the shareholders and board of directors
- When the next election of the board of directors will meet if that date is part of your corporate bylaws
Several companies offer corporate minutes templates. To learn more, read our review of the Best Corporate Meeting Minutes Templates.
Finance and Accounting for Corporations
Managing your finance and accounting is an essential part of successfully running a corporation and can play a key role in whether you can sustain a profitable stream of revenue in the long term.
Keep in mind that finance and accounting are not the same thing and distinguishing between them is essential when you are a shareholder or a manager of a corporation.
Accounting is concerned with looking at a business’s past transactions and relying on certain methods to create consistent, transparent, and reliable historical information about that business.
Finance, on the other hand, uses this historical information to make business decisions about a company’s future initiatives. This means that good accounting is a prerequisite to having strong financial analysis.
If you haven't formed your corporation yet, take a look at our How to Start a Corporation guide to get your company started.
Maintain Consistent and Transparent Accounting
In order to keep your accounting consistent and transparent, you will want to ensure that you:
- Maintain GAAP compliance: While this is not a legal requirement (unless you are a publicly traded company), it can be very beneficial.
- Hire an accounting executive: This can ensure that your corporation satisfies all of the legal requirements it needs to, prepares its financial statements as accurately as possible, and maintains a healthy internal management climate in relation to its finance.
Set Profitability Targets
Every business — regardless of its industry, location, or incorporation status — needs to ensure that it generates more inflow than outflow in order to survive.
Setting accurate profitability targets usually involves:
- Identifying your predictable expenses
- Determining how much revenue your business can (and should) generate in order to stay profitable over a specified period.
If done correctly, your business plan should have already accounted for several of these factors. Running a corporation successfully will commonly involve reverting back to your original, thought-out business plan and ensuring that you are on track with your initial goals.
Check out our How to Write a Business Plan guide for more information on what should be included in your business plan.
Share Financial Information With Employees
The financial managers and shareholders of your corporation should share any financial information that is critical to the business’s: productivity, profitability, and growth with your employees.
This is because by knowing what works, what does not work, and what targets they need to aim for, employees can adopt a much more proactive role in the company.
Sharing financial information with your employees can directly:
- Increase growth
- Incentivize productivity
- Sustain a friendly and passionate work environment
Similarly, it is important that financial managers do not overshare a corporation’s financial metrics with its employees, as this can very easily confuse employees.
For example, a manufacturing company may want to share its:
- Gross profit per hour: This is the percentage of its labor that is consistently being applied to projects
- Percentage of labor direct: This illustrates the revenue generated for every direct hour of labor costs
For a project-based manufacturing business, these two metrics may “make or break” it from a profitability standpoint, and so it would likely benefit from sharing them with the employees that are actively working on its projects.
For accounting-related help, you can have a look at our guide to the best accounting software.
Marketing for Corporations
With so many different marketing options out there, it can be difficult to find what’s best for you, especially if you are a first-time business owner.
We have provided a few steps that you should follow to ensure that your corporation is marketed in an SEO-friendly and efficient manner.
Get a Website
Getting a website for your business is a necessity. This is because it can:
- Increase your credibility
- Increase your organic traffic and sales
- Provide a platform that your customers can rely on for information
- Provide analytics that you can use for your Google Ad campaigns
All in all, every advertisement that you place online should drive your potential customers back to your website. You should invest a sufficient amount of time and resources in ensuring that it is as user-friendly and professional-looking as possible.
Check out our How to Build a Website guide to get started on your business website.
Create a Social Media Presence
Our world is increasingly shifting towards social media-based advertising. Every manager or owner of a business — regardless of its incorporation status or location— will benefit greatly from incorporating it into their marketing strategy successfully.
The two biggest advantages of advertising on social media include:
- Being relatively affordable and reaching a very “wide” pool of consumers
- Providing site-specific analytics which can be used to track the effectiveness of ad campaigns.
Know Your Audience
This will most likely be included within your business plan, but it should be noted nonetheless. You need to tailor your marketing campaigns towards the specific consumer demographics that will most likely be interested in your products or services.
This means you should understand:
- What problem your consumers are currently facing
- How your product or service solves that problem
- How your product is different from other market alternatives (if applicable)
Keep in mind that marketing is largely an industry or business-specific dynami. You may need to brainstorm significantly and perform lots of “trial by fire” tests before determining what works best for you.
Hiring Employees for a Corporation
As a corporation, your incorporator (e.g., yourself, your lawyer, a designated partner, etc.) will file your articles of incorporation and elect your board of directors. Your board will then appoint your officers, who will be in charge of handling the hiring and managing of your employees (this includes the CEO or general manager of your business.).
Even so, there are a few factors that you should keep in mind when determining how to hire employees:
Know Your Purpose
As a corporation, your statement of purpose will usually be included in your corporate bylaws. This can be shown to any future shareholders, partners, or employees in order to determine whether your personalities, views, and business aspirations align.
This way, you will be able to determine whether the potential employees you are interviewing will be a good fit into your business’s internal climate. This may be particularly important if you are a benefit corporation (B corp) or a nonprofit corporation.
Hire People You Have Worked With
Hiring people that you have worked with in the past (i.e., clients) can allow you to continue a professional relationship that you already know works.
Such persons will likely know your personality, your corporate ethos, and your business’s purpose. This can enable you to know whether you’ll be a good fit from relatively early on.
You will also have had a chance to assess their own specificities in the past rather than relying on third-party recommendations, CVs, or short interviews. This can diminish the chances of any unexpected disappointments occurring in the future.
Of course, the downside of this is that if you ever need to fire such persons, you will likely also be losing a client or potential business partner.
Optimize Your Interviews
Most interviews are unique, as they will ultimately depend on the experience and qualifications of the individual being interviewed.
Nonetheless, there are a few general principles that you should keep in mind when conducting your interviews:
- Utilize your employees: This is pivotal if you are adamant about maintaining a friendly internal work culture that incentivizes teamwork. Since you will not be the only person that will have to work with the individual that you are interviewing, it may be a good idea to introduce them to a few of the employees that they will be working with and see what their personal opinion is.
This can go a long way in ensuring that there are no internal disputes, arguments, and unnecessary complications that contribute towards a “toxic” work environment down the line.
- Think outside the box: You will want to steer clear of any general interview questions that the person you are interviewing will have answered in the past. Try to be creative, and place your interviewee in a challenging situation where they will be more likely to show their real personalities.
Generally, you will want to ensure that any person that joins your corporation is sincerely passionate about the work that you do, and is prepared to treat all individuals they work with respect, etiquette, and appreciation.
Have Consistent Team Meetings
Having regular meetings with your team can go a long way in running a corporation efficiently.
This is because it can allow every individual in your company to understand:
- What targets were achieved successfully
- What problems were faced along the way
- What improvements need to be made
- What they did well
There are a few points that you should always include in your team meetings:
- Statistics: This is especially important for manufacturing-based corporations. Every employee or department needs to have a statistic that reflects their production. This statistic should be one that can be recognized, tallied, and reported easily.
- Resolve problems: Resolving any internal disputes that arise in due time is critical in maintaining an efficient teamwork environment. Regular meetings can allow all members of your team to know that they will be able to voice their concerns at a specified time and can work towards finding a solution.
At the same time, it is very important that the way that these are managed is done so correctly, for else they may do little more than just exacerbate an already bad situation. For example, you may want to mandate that any concern introduced should be accompanied by its proposed solution.
The way in which you structure your team meetings will vary depending on your size. Where a small corporation may be able to hold weekly meetings with every single employee, a medium- to large-scale corporation may need to departmentalize these and instruct its managers to hold team meetings within their specified departments.
Filing Annual Reports and Taxes
Depending on your state of registration, you will have to satisfy certain annual, biennial, or even decennial filing requirements when operating as a corporation.
Not doing so will result in your company facing fines and back taxes, losing its “good standing”, or even becoming forcibly dissolved.
The information required to be submitted often includes:
- Updates relating to your corporation’s registered agent(s)
- Updates relating to your contact information
- Updates relating to the names and addresses of your corporation’s officers and directors
Having said that, it should be noted that corporations generally include more in-depth information for their stakeholders, even if this is not a legal requirement.
You should also keep in mind that the information you will be required to submit will be different if you are a publicly traded company, as these are under even tighter federal scrutiny by the SEC.
As a corporation, you may also be required to record your meeting minutes, although these seldom need to be filed (depending on your state). This ensures that they are conducted in a way that is compliant with the formality requirements of the IRS.
You may also be required to submit:
- Filings related to your proof of insurance
- Filings relating to your excise taxes (if applicable)
- Filings relating to your intellectual property rights (if applicable)
Besides its corporate income tax (21%), your corporation may also be liable for:
- Estimated taxes
- Employment taxes
- Federal income taxes
- Social security and Medicare taxes
- Additional Medicare taxes
- Federal Unemployment taxes (FUTA)
For more information on your corporation’s filing requirements, check out our How Much Taxes Do Corporations Pay and Annual Corporation Filing guides.
Frequently Asked Questions
What business structure should I choose as a first-time business owner?
Choosing a business structure is highly discretionary, as each one (e.g., sole proprietorships, limited liability companies (LLCs), corporations, etc.) comes with different pros and cons.
You will need to assess the advantages of each one and determine which is better suited to your particular business model.
From a statistical point of view, most first-time business owners tend to register their businesses as sole proprietorships or as LLCs because:
- They are very easy to set up
- They are very affordable
- They do not need to satisfy numerous federal formalities
- They have “pass-through” taxation, which means they are only taxed once
LLCs also provide their owners with limited personal liability under the law (as they are considered to be separate financial entities to their owners.).
What is the difference between a C corp and an S corp?
Both C corps and S corps are corporate structures, although because it’s technically a tax status and not an entity type, a corporation or LLC must file with the IRS for S corporation election.
The most significant difference between the two is that S corps do not have to pay a corporate income tax. Consequently, they are not taxed twice, and — similarly to unincorporated business structures and LLCs — all tax is handled on their owners’ personal tax returns (i.e., income tax).
What characteristics do I need as an entrepreneur?
Contrary to popular opinion, entrepreneurial traits are not something that you are born with; they need to be developed. By investing a sufficient amount of time, an entrepreneurial path is available to everyone — although it may be a bit easier for some than others.
The main traits you will want to want to develop before initiating your own business include:
For more information, see our Anatomy of an Entrepreneur article.
Are my personal assets protected as a business owner?
Whether your personal assets will be protected or not will be entirely dependent on your business structure. Generally speaking, limited personal liability under the law is enjoyed by owners of:
Of course, if you choose to personally guarantee a loan with a financier, your personal assets will be at risk regardless of the business entity that you have registered your business as.
Do I need a business bank account in a corporation?
Yes. Your corporation is legally required to have its own business bank account because it is considered to be a separate legal entity to you.
Even though this is a requirement for corporations and other incorporated structures, it provides many benefits that leave little room for not opening one. These include increased funding options and interest rates on your total balance.
If you are interested in finding the best bank for your business, read our Best Banks for Small Business review.