It Is Possible to Establish a Corporation by a Simple Verbal Agreement

When it comes to establishing a corporation, many people assume that creating a legally binding document is necessary. However, it is possible to form a corporation strictly through a verbal agreement. In this article, we will explore the benefits and drawbacks of verbal agreements when it comes to forming a corporation.

Firstly, it`s important to understand what a corporation is. A corporation is a type of business entity that is legally separate from its owners. It provides limited liability protection to its shareholders and may have more legal and financial flexibility than other business structures. To form a corporation, legal documents such as articles of incorporation or a certificate of incorporation are typically filed with the state government.

However, it is possible to form a corporation through a verbal agreement. This is known as an “oral contract” and can be legally binding, as long as the elements of a contract are present. These elements include an offer, acceptance, consideration (i.e., something of value exchanged between the parties), and a mutual understanding of the terms.

The benefits of forming a corporation through a verbal agreement include simplicity and ease. There are no legal documents to file or fees to pay, making the process quick and low-cost. Additionally, a verbal agreement can be flexible and allow for changes to be made easily. This is helpful for small businesses just starting out, as they may not have all the information or resources necessary to create a formal legal document.

However, there are also drawbacks to forming a corporation through a verbal agreement. The lack of a written document can lead to confusion or miscommunications about the terms of the agreement. Additionally, verbal agreements can be difficult to enforce in court, as it can be challenging to prove the existence and terms of an oral contract.

Furthermore, it`s worth noting that some states have specific requirements for forming a corporation. In these cases, a verbal agreement may not be sufficient and legal documents may need to be filed regardless.

In conclusion, while it is possible to form a corporation through a simple verbal agreement, it`s important to weigh the benefits and drawbacks carefully. Verbal agreements can be a quick and easy way for small businesses to establish themselves, but they may not be as legally sound as a formal written document. As always, it`s best to consult with a legal professional before making any decisions regarding business formation.