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Entity Formation Basics By: Uzma Ahmad 734.214.7720 [email_address]
Why should I think about forming an entity? <ul><li>Formalization of activities and relationships </li></ul><ul><li>Brandi...
The Corporate Veil <ul><li>Generally, shareholders are viewed as being distinct from the corporate entity </li></ul><ul><l...
Piercing the Corporate Veil <ul><li>Insufficient capitalization, lack of corporate formalities, nonpayment of dividends, i...
Corporate Governance <ul><li>Delineates the roles and responsibilities of directors versus officers </li></ul><ul><li>Inde...
Corporate Governance <ul><li>The Sarbanes-Oxley Act of 2002 -- public companies </li></ul><ul><li>Through various sources ...
Good Corporate Governance = Maximization of Value <ul><li>Commentators indicate that there may be an acquisition premium f...
Entity Choices <ul><li>Sole proprietorship  </li></ul><ul><li>Corporation </li></ul><ul><ul><li>Subchapter C corporation <...
Basic Documents <ul><li>Articles or Certificate of Incorporation – filed with the state of incorporation </li></ul><ul><li...
Other Topics <ul><li>Roles of shareholders, directors, officers </li></ul><ul><li>Common stock and preferred stock </li></...
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Incorporation From Legal Point Of View

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Transcript of "Incorporation From Legal Point Of View"

  1. 1. Entity Formation Basics By: Uzma Ahmad 734.214.7720 [email_address]
  2. 2. Why should I think about forming an entity? <ul><li>Formalization of activities and relationships </li></ul><ul><li>Branding/reservation of name </li></ul><ul><li>Insulation from personal liability </li></ul><ul><li>Value Maximization </li></ul>
  3. 3. The Corporate Veil <ul><li>Generally, shareholders are viewed as being distinct from the corporate entity </li></ul><ul><li>Generally, shareholders are not personally liable for the liabilities and obligations of the corporation </li></ul>
  4. 4. Piercing the Corporate Veil <ul><li>Insufficient capitalization, lack of corporate formalities, nonpayment of dividends, insolvency, siphoning of funds by dominant shareholder, non-functioning officers, absence of corporate records, facade for individual dealings </li></ul><ul><li>Corporate formalities: </li></ul><ul><ul><li>Board of director meetings, minutes </li></ul></ul><ul><ul><li>Good corporate records </li></ul></ul><ul><ul><li>No co-mingling of business and personal assets </li></ul></ul>
  5. 5. Corporate Governance <ul><li>Delineates the roles and responsibilities of directors versus officers </li></ul><ul><li>Independent directors, board committees with charters, related party transactions </li></ul><ul><li>Internal controls, effective disclosure </li></ul><ul><li>Accurate financial reports </li></ul>
  6. 6. Corporate Governance <ul><li>The Sarbanes-Oxley Act of 2002 -- public companies </li></ul><ul><li>Through various sources has become important for private companies: </li></ul><ul><ul><li>Lenders </li></ul></ul><ul><ul><li>Grant-makers, government contracts </li></ul></ul><ul><ul><li>Insurers (D&O policy) </li></ul></ul><ul><ul><li>Best practices organizations </li></ul></ul><ul><ul><li>Venture capital investors </li></ul></ul>
  7. 7. Good Corporate Governance = Maximization of Value <ul><li>Commentators indicate that there may be an acquisition premium for companies that have good corporate governance </li></ul><ul><li>Minimizes post-acquisition integration costs </li></ul><ul><li>In any case, venture capital investors will diligence these issues and good corporate governance helps the target to distinguish itself </li></ul>
  8. 8. Entity Choices <ul><li>Sole proprietorship </li></ul><ul><li>Corporation </li></ul><ul><ul><li>Subchapter C corporation </li></ul></ul><ul><ul><li>Subchapter S corporation </li></ul></ul><ul><li>Limited liability company (LLC) </li></ul>
  9. 9. Basic Documents <ul><li>Articles or Certificate of Incorporation – filed with the state of incorporation </li></ul><ul><li>Incorporator resolutions/Board resolutions </li></ul><ul><li>Bylaws </li></ul><ul><li>Subscription Agreements and Stock Certificates </li></ul><ul><li>Stockholders Agreement (repurchase rights, rights of first refusal, drag-along, tag-along) </li></ul><ul><li>Confidentiality, Non-Compete and Assignment of Inventions Agreement </li></ul>
  10. 10. Other Topics <ul><li>Roles of shareholders, directors, officers </li></ul><ul><li>Common stock and preferred stock </li></ul><ul><li>Angel investors and venture capital investors </li></ul>
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