Initial Concerns in Forming a Corporation

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

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

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

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

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

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

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

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

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