Startup Law 101 Series – What Every Entrepreneur Should Know About Corporate Legal Basics


How does corporate maintenance work in a startup or small business?

Corporate maintenance is ultimately a creature of local law and you need to work with your business lawyer to make sure you comply. If you flub it, you might get your corporate veil pierced. So do it right, with proper legal guidance.

Having said that, corporate maintenance can be overblown by lawyers. Therefore, take the guidelines below and use them as a double-check on how your lawyer is proposing that you handle this issue.

Ultimately, corporate maintenance can be done formally, by the book, with all the legal trimmings, or in a far easier way if desired. Each approach has its good and bad points for a startup or small business. As an entrepreneur, you get to direct how it will be done. Use your knowledge of corporate basics to ask the right questions of your lawyer and to direct your lawyer’s activities.

Below I explain some of these corporate basics.

The Basics of a Corporation

The basics of a corporation are simple (again, always subject to local law and possible contractual variations).

A corporation is a legal person. Being an artificial person, it acts through agents. There are shareholders. There are directors, who sit as a board and manage it at the highest level. And there are officers, who conduct its day-to-day operations.

Shareholders control the corporation by controlling the board. They do not otherwise participate in management decisions of the company.

The board makes the most important decisions for the corporation – those that are out of the ordinary course of the company’s day-to-day business operations. Directors have a fiduciary duty to act in the best interests of the corporation and its shareholders.

The board in turn controls the officers by appointing them to serve at its pleasure.