There is nothing like the entrepreneurial rush. You know the rush… when you see a problem and immediately think of an ingenious way to fix it. You’re flooded with excitement, determination, and inspiration all at once. Amazing! You have the idea, you’re enthusiastic and you are ready to begin! Now what?
If you’re not sure if your business should be an LLC or a Corporation, check out our other blog on this debate and see what category you fall in. If you decide that a corporation is best for you, keep reading!
Startups often come to us asking what documentation they need to ensure their corporation is properly incorporated and, as always, our goal is to give our clients a better understanding of how to navigate this process.
Our short answer:
In order to start your corporation, you need to make sure you have 7 critical documents in place. Below, we’ll go into detail about what each one of these documents are.
1.Certificate of Incorporation
So you have decided to form a corporation. Each state has different filing requirements for starting a corporation. After selecting the state of incorporation (we usually recommend startups to incorporate in Delaware, we will discuss why in a later blog post) you must file the Certificate or Articles of Incorporation with the state’s Secretary of State and pay the applicable filing fee. Generally, this document includes the corporation’s name, the number of shares authorized by the corporation and the address of the registered agent for the corporation in the state, but the information that needs to be included may vary state by state. After filing and approval of the document and payment of the fee by the state, the corporation is officially formed!
2. Action Of Sole Incorporator
The purpose of this document is for the corporation’s incorporator to release themselves from their incorporator duties after the corporation has been officially formed. The incorporator is the person who files the Certificate of Incorporation with the State, initially forming the corporation, and does not necessarily have to have ownership in the company. This document delegates any further action to the directors, whose names may also be included in the document.
3. Initial Meeting of the Board of Directors (or Written Consent in Lieu of First Meeting)
This document is where the initial resolutions of the board of directors are memorialized. A board meeting shall be held by the board of directors in order to appoint and elect the officers of the corporation, as well as other initial matters that need to be addressed, such as ownership of stock, authorization for bank accounts, adoption of Bylaws, etc. This meeting, if not conducted in person, most states allow for the resolutions be unanimously adopted in writing and the board members sign the document to make the resolutions effective.
The Bylaws are the most important document that you should have upon formation of the corporation. This documents states how the corporation will be operated, how meetings of shareholders and directors will be called, voting requirements, removal of officers, dissolution of the corporation, as well as other procedures that the corporation must follow. In the event there is any dispute as to how the corporation must proceed when an issue arises, the Bylaws are the first place to look for direction.
5. Shareholders Agreement
This agreement will set out the rights and obligations of each shareholder in the corporation. It helps the corporation run smooth by addressing important issues such as the transfer of shares, management and control, in addition to profits and distributions of shareholders and officers. This agreement tends to be more specific than Bylaws, and may include provisions such as confidentiality and intellectual property procedures that the shareholders must abide by. This type of agreement is most commonly used in closely-held corporations that only have a few shareholders.
6. Restricted Stock Purchase Agreement
This document is an agreement between the corporation who will sell the initial stock to its shareholders and the initial shareholders of the corporation. This is meant to document the issuance of shares from the corporation to the founders who are buying the shares of the corporation at par value or at a nominal amount. This agreement sets the number of shares that the shareholder owns, restrictions on the transfer of the shares and vesting requirements.
7. Stock Certificate
This final document represents a shareholder’s ownership of shares in the corporation. Many states do not require corporations to issue paper certificates to its shareholders. However, most founders like having this piece of paper because (besides from evidencing their ownership) of what such document symbolizes.
It is important that your newly-formed corporation maintains written records at all times. This list is just a summary of what we believe are the most essential documents you will need to start your new venture. This documentation is important because it validates the existence of your corporation and may be requested by potential investors in the future to make sure everything is order.
Remember that all board meetings should have corporate minutes and official resolutions signed by the directors. Also, a stock ledger listing all of the company’s shareholders and the number of shares they own is essential.
If you still have questions regarding the documentation you need to incorporate your corporation, we recommend reaching out to an experienced corporate attorney for advice . At Benemerito Attorneys at Law, we offer free consultations and would love to help guide you toward the right decision for your business.
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This blog is for informative purposes only. This information does not constitute legal advice. You should consult with a licensed attorney that can advise you according to your particular circumstances.