Corporation formation metrics: what to know and why

There is no score for a corporation. There is a set of records, and each one either reconciles with the others or does not. That is what can honestly be measured, and it turns out to be more useful than any score, because a reconciliation failure points straight at the thing to fix.

Below is a reconciliation list. Work it once now, and once a year afterwards.

What to take away

• The test is agreement between records, not the existence of records. Four documents that each look fine but disagree is the normal failure.
• The public filing, the share register, the minute book, the bank mandate and the payroll list should all describe the same people in the same roles.
• Nothing here is a benchmark or a target. It is a set of yes or no checks with a stated source for each.
• Anything the check cannot settle is a question for your adviser or for the office that holds the record.

The reconciliation

Check	Source A	Source B	It passes when
The corporation is in the state it thinks it is	Your file copy	The state's registry search	The status field says what you expect and the name matches exactly
Directors	Minute book	Public filing, where the state lists them	Same names, same appointment dates
Officers	Board resolutions	Bank mandate	Everyone who can sign was appointed by a resolution that exists
Shares issued	Share register	Board approvals	Every entry in the register traces to an approval, and none is missing
Authorized versus issued	Formation document	Share register	Issued never exceeds authorized
Shareholders	Share register	Any shareholders' agreement	Same people, same holdings, no promise sitting outside both
Address of record	Public filing	Where post is actually read	Mail sent to the filed address reaches a person within days
Contact for legal papers	Public filing	That person or firm	They have agreed, are reachable, and know where to forward
States of operation	Where staff and work are	Registrations held	Every state with people or premises has been asked its own view
Recurring filings	The state's schedule	Your calendar	Each has a date and a reminder ahead of it

Ten checks. A corporation that passes all ten can answer any question a bank, a buyer or a claimant is likely to ask, and one that fails three has three specific pieces of work rather than a vague worry. What each of those records is for, and why the roles behind them have to stay distinct on paper, is set out in how a corporation is put together.

How to run it

Do the registry search first, because everything else assumes it. Search the state's own business registry for the exact name and read what comes back rather than trusting your own file. The IRS maintains a directory of state government sites, which is a safer route in than a search engine, since lookalike sites cluster around these searches.

Then work the table downwards. Each row takes a minute if the records are good and reveals real work if they are not. Write down which rows failed and the date, because next year's version of this is mostly a comparison against that list.

Measures that mislead

• Years since incorporation. An old corporation with a stale register is in worse shape than a new one with a clean one.
• Number of documents held. A template pack inflates this without touching a single row above.
• Whether the annual report was filed. It shows the office was paid. It says nothing about whether the record it contains is true.
• Money spent at formation. The rows above are almost all maintenance, and maintenance is not something that was purchased once.

What this does not measure

Whether a corporation was the right form. That was a judgment made with a lawyer and an accountant on your facts, and the reasoning behind it belongs in the file next to these checks. If the facts have changed, the question goes back to them, starting from the comparison of structures.

It also does not measure tax position. How the corporation is classified and what that means for how owners are paid is the accountant's territory, against the IRS's own current criteria, and the general starting point is its corporations section.

When a row fails

A failed row is not an emergency, it is a task. Most repair themselves with a resolution ratifying what everyone already believed, a corrected register entry, or an updated filing. The ones to treat as urgent are the two about addresses and contacts, because a failure there means something important is being delivered somewhere nobody looks. The general shape of that repair work is set out in handling changes, and the specific appointment behind one of those rows is explained in who receives legal papers.

Common questions

How long does the full reconciliation take?

An hour or two the first time if the records exist, and considerably longer if they do not, which is itself the finding.

Should a small corporation really do all ten?

The ten are shorter for a small corporation because most rows have one name in them. It is the size of business most likely to have skipped the record entirely, which is exactly why the check is worth running.

What if a row cannot be settled?

Write down what you found, what is missing, and who would know. An open item with a name against it gets closed. A vague sense that something is wrong does not.

Who should hold this?

Whoever would have to answer a bank or a buyer. If nobody in the business has that role, that absence is the finding, and it is a common reason small corporations quietly fall out of shape.

Does passing all ten mean the corporation is protected?

It means the records agree. Protection also depends on conduct, on what has been personally signed, and on insurance, and none of those shows up in a reconciliation.