Corporations are the oldest formal business entities we have. Still, many people are confused by the practical things one must have for a corporation.

A corporation is a stand alone business entity. It embodies a legal fiction, to wit, it acts as a "person" separate from its owners, known as shareholders. This fiction requires the corporation to act as its own entity by filing taxes, agreeing to contracts and so on. If a corporation is sued, its shareholders cannot be named in the suit unless they are involved in the alleged offending acts. For instance, Microsoft is a huge corporation. If I buy stock in it, I will not be a defendant in any lawsuit filed against the company.

While forming a corporation is obviously a smart move for many businesses, there are some formalities to running it. Paying a couple of hundred bucks online does not cut the bill if you don't follow through with corporate formalities. Let's take a look at some of the nuts and bolts.

1. Issuing Shares - For the corporation to be valid, it must be owned by someone. These owners are shareholders. The shareholders exchange money, services or property for their shares in the entity.

2. Bylaws - Bylaws are simple the rules under which the entity will run. The control the administration of the corporation and its business activities. Common issues covered in the rules concern things such as how board meetings can be called, restrictions on the sale of shares and so on. Most corporate books come with form bylaws. They are not worth the paper they are written on. Make sure to implement original and accurate bylaws.

3. Minutes - Minutes are a confusing area for most people. The minutes are simply the written account of what happens at board meetings. The minutes should be taken down by the Secretary Officer. They should then be written out and approved by the Chairman. During the next board meeting, they should be read to the board and approved before being entered into the corporate books.

4. Board of Directors - The Board of Directors is the oversight committee for the corporation. They make decisions on the overall course of action for the entity, but do not handle day to day decisions. The board members are elected by shareholders at an annual meeting. The method of election and number of directors is dependent on what is written out in the bylaws.

5. Articles - The Articles of Incorporation are the documents filed with the Secretary of State to establish the entity. The exact language varies from state to state, but they generally set out the name of the entity, the business purpose and other things required by the state.

6. Agent for Service of Process - Included in the Articles of Incorporation, the Agent for Service of Process is the person that accepts bad news for the business. If a lawsuit is filed, the suing party serves it on the agent. This does not make the agent a defendant. They are merely the human representative of the corporation.

The above represent the general elements of a corporation. Corporations can be designed in a variety of ways, so there are other elements that can arise given particular situations. Regardless, the above represent the nuts and bolts of the entity.

Richard A. Chapo is with SanDiegoBusinessLawFirm.com - providing California incorporation services.