21 Dec Corporate Organization Documents
When it comes to business planning and preparing your business for success, perhaps nothing is more important than getting the general, requisite legal documentation in place prior to starting. Even those who may have been in business for years can benefit from doing a general consult from this list to ensure they are not missing something vitally important. If some of the documents missing, getting your house in order will be extremely helpful, especially if you’re looking to sell anytime soon.
As perhaps the most important document, the Shareholders Agreement lays out the terms of the buy/sell agreements between shareholders. While the document is not required in a legal sense, it is the most important document from a continuity and asset protection point-of-view for both shareholders and the longevity of the company. We have discussed this particular document in further depth later on the blog.
State of Incorporation
Delaware is the crown jewel for incorporation. Instead of going into why Delaware is perhaps the best state in which to incorporate. Here are some other questions to ask when it comes state of incorporation, which may prove helpful:
- Will the company be doing business in multiple states? If so, it is easier to avoid the taint of a non-local company by incorporating in Delaware.
- Does the company intend on going public or will the company need to raise capital, at some point, from institutional investors? The managers of potentially-public firms and firms seeking venture funds will at least be spared the inquiries of “why not Delaware?”
- Will the company incur any operating, tax or franchise fees if it’s a company operating under Delaware’s jurisdiction? There are benefits of staying local when incorporating, among them are the costs associated with fees inherent to not remaining a company in a local state.
Several considerations are necessary in determining whether to incorporate locally or to go straight to Delaware to incorporate your business. When making the decision, it is best to consult both legal and tax specialists.
Articles of Incorporation
As the charter document the Articles of Incorporation are what make a company an actual legal entity. They generally include specifics on location of business, legal name, registered agent and shares of stock issued. Articles of Incorporation could also include the following, depending upon the legal requirements of the jurisdiction where it is organized
- Provisions for dealing with limited liability of directors
- Shareholder consent voting procedures (within what is considered legal)
- Super-majority shareholder voting rights
- Authorization of “blank check” stock
As the governing document outlining the relationship between key employees and the corporation, the Employee Agreement includes important, specific deal points for stock options and other provisions between the owners, employees and the issuer(s).
Asset Transfer Documents
When specific assets are transferred to the corporation, there needs to be documentation. Lease assignments, license agreements, bills of sale and sometimes even real estate deeds often require documents which include provisions requiring the corporation to assume not only the asset itself, but any liabilities associated with the asset.
Bylaws are like an operations manual for the “how tos” for your company. Here are a list of key provisions often included in company bylaws:
- Authorized board actions without a meeting
- Board compensation
- Stock certificates and legends
- Fiscal year designation
- Indemnification provisions
- Bylaw amendment procedures
- Number of directors
- Authorized use of electronic transmissions for shareholder communication
- Annual meeting time and place
- Special meeting notice requirements
Bylaws help to explicitly indicate how the business operates at the 30,000 foot-level. Some have deemed it as the owner’s manual for the business.
Directors’s resolutions are documents approving other documents necessary for the start-up for the business. Bylaws, articles of incorporation, officer election, approval of lines of credit, authorization of stock issuance, and authorization of business commencement are all part of directors’ resolutions. In addition, such resolutions could include assets, leases, licenses and IP right approvals. Resolutions are signed by all directors.
Stock Register and Stock Certificates
Stock issuance to shareholders is included in the stock register and stock certificate documents. Such certificates usually include legends for stock valuation which reference provisions in the Shareholder Agreement. The Stock Register will also indicate to whom shares were given, when they were given and how many were given.
The pre-incorporation agreement is generally for the overly organized as it is an outlining document created before a true incorporation agreement is drafted. It’s purpose is to solidify the terms and conditions of the corporations prior to the formal organization of the company.
Government Filing Documents
Forms on both Federal and State levels need to be completed in order to officially organize the corporation as an entity, including:
- The Articles of Incorporation
- Tax ID # or EIN (Employer Identification Number) Application
- Application for State tax ID
- Form 2553 for S-corp selection
Further detail in each of the aforementioned areas may be required. This list is not meant to serve as legal advice, but is more intended to give business owners and management a general outline as to what should be included in the business plan process.