For Profit Corporation - Iowa Code Chapter 490

A business corporation is the most complex form of business organization. A for profit corporation is an association of individuals created by law with powers and liabilities independent of its stockholders. In essence, the corporation is a separate and distinct entity from the people who control, manage, and own it. As a separate entity, the corporation owns the corporate property, owes the corporate debt, is the debtor that gets sued or the creditor who sues. The day-to-day management of a corporation is usually done through a board of directors and officers who are usually elected by the corporation's stockholders.

Stockholders and company officials are almost always protected from personal loss, other than their own investments in the company's stock. A corporation is governed by its Articles of Incorporation and Bylaws.

Generally, there are two types of corporate structures. A closely held corporation is one where there are a small number of shareholders who own the corporation's shares, share transfer restrictions are likely, and the owners of the corporation are usually the board members and officers who also work for the corporation. A publicly held corporation, in contrast, has shareholders who are part of the general public, demand for the corporation's shares is much broader, there are generally no share transfer restrictions, and shareholders are not exclusively board members and officers.

When deciding whether to organize as a for profit corporation, it is important to take into consideration federal tax laws. The Internal Revenue Service distinguishes between subchapter S and subchapter C corporations. A subchapter S corporation allows a smaller business to have flow-through taxation as if it were a partnership. Some conditions for obtaining a subchapter S status include having seventy-five or less shareholders and that there be only one class of outstanding stock.

For more information on subchapter S and C corporations, contact the Internal Revenue Service at 800-829-1040.

CHOOSING AN APPROPRIATE FORM OF BUSINESS REQUIRES CAREFUL CONSIDERATION OF ISSUES COVERED IN THIS GUIDE AS WELL AS OTHERS NOT DISCUSSED. THIS GUIDE ONLY PROVIDES BASIC INFORMATION ON SOME OF THE LEGAL AND PRACTICAL ISSUES TO CONSIDER WHEN SETTING UP A BUSINESS. IT IS MERELY DESIGNED TO ASSIST PROSPECTIVE ENTREPRENEURS IN THE EARLIEST STAGES OF BUSINESS DEVELOPMENT. THE GUIDE IS NOT A SUBSTITUTE FOR PROFESSIONAL ADVICE. PERSONS CONTEMPLATING STARTING A BUSINESS ARE STRONGLY ENCOURAGED TO CONSULT LEGAL, FINANCIAL AND TAX ADVISORS. FIND AN ATTORNEY THROUGH THE IOWA STATE BAR ASSOCIATION'S ATTORNEY REFERRAL SERVICE.

For Profit Corporation - Points to Consider

• Liability of owners/shareholders is limited to amount of their investment.
• Ownership in a for profit corporation is easily transferable.
• A for profit corporation can have perpetual existence.
• Capital can be raised easily by selling stocks and securities.
• A for profit corporation has centralized management so the investors do not have to become involved in the day-to-day operations.
• A for profit corporation is the most complex organization to operate. For example, the law requires annual meetings the corporation's shareholders. It also requires more extensive record keeping.
• A for profit corporation is subject to double taxation. This means a corporation pays a tax on its income when earned, and its shareholders pay a tax on the income when it is distributed to them in the form of dividends.

For Profit Corporation - Procedural Aspects

• Formation
  • Chose a proper name for the corporation. The name must meet the requirements of I.C. § 490.401(1). The corporate name must be distinguishable as required by IC § 490.401(2). This means the name may not already be in use by another business entity on record with the Secretary of State. A corporation may also reserve a corporate name according to IC§ 490.402 by completing an Application for Reservation of Name. A previously reserved corporate name may also be transferred by completing a Notice for Transfer of Corporate Name.
  • Deliver Articles of Incorporation to Secretary of State's Office. Articles of incorporation must set forth all information required in IC § 490.202 and executed as required in IC § 490.120(6). View the minimum requirements.
  • A corporation may amend its Articles of Incorporation according to IC §§ 490.1001-1005. Any amendments made to the Articles of Incorporation must be filed with the Secretary of State according to IC § 490.1006.
  • A corporation's board of directors may restate its Articles of Incorporation according to IC §490.1007. Restated Articles of Incorporation must be filed with the Secretary of State according to IC §490.1007.
• Biennial Report - Each domestic corporation, and each foreign corporation authorized to transact business in this state, shall deliver to the secretary of state for filing, a biennial report according to IC § 490.1622. The first biennial report shall be delivered to the secretary of state for filing between January 1 and April 1 of the first even-numbered year following the calendar year in which a domestic corporation was incorporated or a foreign corporation was authorized to transact business. Subsequent biennial reports must be delivered to the secretary of state between January 1 and April 1 of the following even-numbered calendar years.
• Dissolution - A corporation may be administratively dissolved according to IC § 490.1420, judicially dissolved according to IC 490.1430, or a corporation may dissolve itself by delivering to the Secretary of State Articles of Dissolution according to IC § 490.1403. A corporation administratively dissolved may complete an Application for Reinstatement according to IC § 490.1422 . A corporation may also revoke its dissolution within one hundred twenty days of the dissolution's effective date according to IC § 490.1404.
• Merger - A corporation interested in a merger or share exchange should follow IC §§ 490.1101-1110.
• Foreign For Profit Corporation - If a corporation currently exists under the laws of another state but wants to transact business in Iowa, IC § 490.1501 requires the corporation to apply for a Certificate of Authority from the Secretary of State. View additional information on what constitutes "transacting business in Iowa." A foreign corporation may complete an Application for Registration of Corporate Name according to IC § 490.403. A foreign corporation may also renew its name for successive years by completing an Application for Renewal of Registration of Corporate Name according to IC § 490.403. A foreign corporation must apply for an Amended Certificate of Authority if any of the items listed in IC § 490.1504 occur. According to IC § 490.1520, a foreign corporation shall not withdrawal from Iowa until it obtains a Certificate of Withdrawal.
• Fees - View fees associated with filings for For Profit Corporations:

  Domestic Profit

  Foreign Profit

For Profit Corporation - Key Attributes

• Creation (minimum requirements) - File articles of incorporation with Secretary of State according to IC § 490.202. Make sure corporate name is distinguishable according to IC § 490.401. A for profit corporation shall adopt by-laws according to IC § 490.206.
• Profits / Losses / Distributions - By articles of incorporation or according to IC § 490.640.
• Liability - Liability for shareholders according to IC § 490.622; for directors according to IC § 490.832; for officers according to IC § 490.842.
• Capital / Financing - By articles of incorporation or according to IC § 490.623.
• Duration - May be perpetual but can be dissolved according to IC §§ 490.1401, .1402, .1420, .1430.
• Transfer of Ownership - Freely transferable if not restricted by articles of incorporation or according to IC § 490.627. Keep in mind IRS requirements for keeping particular corporate status.
• Management and Control - Management is by board of directors according to IC § 490.801.
• Taxation -
  State: call Iowa Revenue and Finance at 515-281-3114
  Federal: call Internal Revenue Service at 800-829-1040
• Reporting Requirements - Biennial Report due in even numbered years.
• Fees - View the Schedule of Fees:

  Domestic Profit

  Foreign Profit