Incorporating a business can be a complex process and corporate ownership is considered to be, in and of itself, a complex form of structuring a business and its ownership. In preparing to navigate the complexities of corporate ownership, there are certain things you can do on the front end to make your life easier down the road as well as set up your business for success before it has even been established. Creating a pre-incorporation agreement is one such step you can take.
What’s Accomplished by a Pre-Incorporation Agreement?
Yes, corporations are complex business entities and there are simpler business structures out there. A corporation, however, offers a number of advantages that are not necessarily included in establishing another business type such as a partnership or sole proprietorship. While the incorporation process can be a bit of a drag with all of its twists, turns, and red tape, those who incorporate their business stand to reap significant tax advantages as well as the availability of simplified methods for transferring ownership. Corporations are also one of the more attractive business forms for potential investors.
A pre-incorporation agreement is one type of business contract in a suite of legal documents, including a shareholder’s agreement, that can help ensure that there are no unpleasant surprises that crop up once a corporation has been established. A pre-incorporation agreement can detail how a corporation will operate. It can outline the management structure as well as set the terms for who will exercise control over the company before the initial corporate meeting is held. The agreement grants authority to the corporation’s incorporators prior to the corporation coming into existence.
The most basic pre-incorporation agreement should at least include the following:
- The corporation’s name
- Shareholder names
- Initial officers and directors
- The state of incorporation
- The corporation’s purpose
- Types of stock to be issued
- The quantity of stock to be issued
- Voting rights
- Corporate financing summary
- Restriction on purchasing and transferring stock
- Shareholder signatures
A pre-incorporation agreement should also detail the responsibilities of each incorporator as well as set the scope of liability. You see, a pre-incorporation agreement should aim to address those common issues that can arise when setting up and running a corporation. That is why it should also define things like the corporation’s, and its organizer’s, obligations.
When properly drafted, a pre-incorporation agreement can iron out many of the important details associated with the corporate structure and its operation as well as its management. It can limit the personal liability of the organizers. It can save the organizers and the soon to be formed corporation a great deal of time, money, and energy.
Business Law Attorneys
Take the time and make the effort up front to set your corporation up for success. Avoid needless conflict and manage expectations to help ensure your corporation runs as smoothly as possible. Talk to the team at Jones, Gregg, Creehan & Gerace about establishing a pre-incorporation agreement. Contact us today.