Initial Concerns in Forming a Corporation

Transcription

1 Initial Concerns in Forming a Corporation Type of entity to be formed. S corp or C corp; in addition other forms, such as the LLC or LP may be considered State of incorporation Some states (i.e., Delaware) are popular choices because of favorable tax and/or corporate structure rules Determine who will manage the corporation Determine what the client s reasons and goals for incorporating are Legal Document Preparation Class 4 Slide 1

2 Paperwork Involved in Incorporating Pre incorporation Agreement If more than one person is involved Articles of Incorporation Must be filed with the state Stock certificates/ stockholder agreement Obtaining Tax ID #, business licenses, if applicable Minute Books Organizational meeting schedule Bylaws Legal Document Preparation Class 4 Slide 2

3 Pre incorporation Agreement This is often necessary because one person is in charge of incorporating, but more than one will own the business This should include: A contractual agreement to incorporate The purpose of the new corporation and what powers it will have The financing/ capitalization plan for the corporation How much ownership each party will have in the corporation Where the corporation will be formed Who will have what management rights over the corporation Who will be directors and officers Etc. Legal Document Preparation Class 4 Slide 3

4 What the Articles of Incorporation Must Include Name of the Corporation Must be distinguishable from every name already in use Must contain Inc., Co., Corp or similar in the name Purpose Can be worded broadly and usually is E.g., to engage in all lawful business activities Often limited in non profit corporations to those activities that are consistent with tax exempt status Registered Agent The person and address you name here are going to be the recipient of official notices and documents from the state Legal Document Preparation Class 4 Slide 4

5 Articles of Incorporation 2 Duration Assumed to be perpetual if nothing is listed Names of incorporators (must name at least one) Names of directors (optional can instead be named later) Capitalization; including Number of shares issued and at what par value Can also list the shareholders and who owns what % of the company Designation of agent for service of process Signature of incorporator(s) Legal Document Preparation Class 4 Slide 5

6 Paperwork Involving Stock Stock Subscription Agreement This is where investors agree with the company to purchase a percentage of the company for a given price. It should include: The names and addressed of all parties The number and class/ type of shares to be issued The price to be paid for each share The date of the payment and issuance of the stock Stock Certificate This is evidence of ownership of the stock and should contain all relevant information. It is used as evidence of the ownership Stock Transfer Ledger The ownership is recorded in the corporation s books as well Legal Document Preparation Class 4 Slide 6

7 Organizational Meeting State law often dictates that a meeting of the incorporators or shareholders (or directors, if they are named in the certificate) meet after the filing of the certificate. At this meeting, the governing people: Elect directors, if not already done Elect initial officers (although the directors will generally have the power over the officers) Accept or finalize stock subscription agreement Adopt the corporation s bylaws Annual meetings are also required of some corporations Legal Document Preparation Class 4 Slide 7

8 Corporate Bylaws This is the governing instrument of the corporation. It is passed by the incorporators, shareholders or directors. It should contain: Location of the corporate office Time and location of scheduled stockholder meetings The rights of different classes of stockholders Duties and rights of directors (and officers optional) Procedure for electing and removing directors Procedure for issuing stock and dividends Procedure for adopting new bylaws or amending the existing ones Legal Document Preparation Class 4 Slide 8

9 Some other Corporate Paperwork Corporate Minute Book During organizational meetings (or even sometimes during directors meetings), the minutes are kept by a secretary and inserted into the corporate minute book. The bigger the company, the more important diligence in this matter is. For a publicly traded company, doing this accurately is critical Corporate Annual Report Many states require this and for public companies, it is scrutinized by the SEC. It typically contains: Basic information about the company Capital structure Profits or losses made over the last year Other economic data about the company Legal Document Preparation Class 4 Slide 9