Sample Share Certificate with Legend from Attorneys Corporation Service, Inc.
Last year, I wrote about the importance of placing appropriate legends on corporate share certificates (Why Do We Need a Corporate Records Book?) and limited liability company membership certificates (Should My LLC Issue Membership Certificates?). This post provides more details about why legends are required and how they can be printed on the certificates. (Although I will use corporation-specific terminology below, the considerations are similar for LLCs.)
The legend that routinely appears on my clients’ share certificates (I have the company that prints the certificates include it) is one stating that the shares have not been registered under state or federal securities laws. The reason: To put the shareholder on notice that, under applicable securities laws, the shares cannot be transferred unless certain circumstances are satisfied. Here is an example:
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In Blue Nile v. Ideal Diamond Solutions, the U.S. District Court for the Western District of Washington held that co-defendant Larry Chasin, founder and an officer of defendant IDS, was personally liable for infringement of plaintiff Blue Nile’s copyrighted images, even though Chasin claimed he had no role in putting infringing images on websites and he did not know the images were infringing.
Blue Nile is an online jewelry and diamond retailer. Chasin founded and operated IDS to create websites for brick-and-mortar jewelers to help them compete online. The websites included some of Blue Nile’s copyrighted images.
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An entrepreneur who was trying to prepare a limited liability company (LLC) Operating Agreement on his own (apparently using someone else’s as a template) was puzzled by the concept of “sharing losses”. I could tell right away that he was not familiar with two fundamental concepts of LLC accounting: Allocations vs. distributions.
Before going further, I need to make two disclaimers:
- This post is not about taxes.
- The following discussion is extremely simple, addressing only the most basic considerations. One of the great things about LLCs is that the members can agree to make allocations and distributions in any way they desire to meet their business needs. As a result, LLC accounting can be far more complex than the following might suggest.
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Several months ago, I wrote “Which Financial Information Must a Corporation Provide to its Shareholders? “ This post – prompted by a client’s question – discusses the financial information that a California limited liability company must provide to its members.
Corporations Code Section 17106 provides a broad set of rights to LLC members, managers and holders of economic interests. These include, among others, the right to inspect and copy, during normal business hours and for purposes reasonably related to the person’s interest as a member, manager or holder of an economic interest, the following records (specified in greater detail in Corporations Code Section 17058(a)):
- A list of members and holders of economic interests
- A list of managers
- The articles of organization
- Federal, state and local tax returns
- The operating agreement
- Financial statements for the past six fiscal years
- Books and records for the current and past four fiscal years
Photo credit: iStockphoto
Dana H. Shultz, Attorney at Law +1 510 547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
This post explains the difference between a corporation’s board of directors and an advisory board – a point that may not be clearly understood by some people, especially those from other countries, where corporate governance is different from that in the U.S.
The board of directors is elected by the shareholders and is responsible for management of the company. It appoints and removes officers (who run the corporation’s day-to-day business) and makes important decisions about finances and other matters.
An advisory board provides advice on issues that are important to the corporation’s business. The advisory board is merely a resource – it has no power to make corporate decisions or to act on behalf of the corporation.
Photo credit: Muriel Miralles de Sawicki via stock.xchng
Dana H. Shultz, Attorney at Law +1 510 547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
This post about the state in which a startup should incorporate brings together points I have made in earlier posts (please see below) and is based on a comment I made on another Quora participant’s answer.
I admit to having a point of view that differs from that of many other lawyers. However, as explained toward the end of this post, my point of view results directly from the types of clients that I serve.
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This post is based on a question that I (and others) answered on Quora: What happens when a corporation issues more shares than are authorized under the Articles of Incorporation?
Answer: The supposedly-issued shares are void – in effect, they do not exist. For the shares to be issued, the Articles (CA) or Certificate (DE) of Incorporation must be amended to increase the authorized number of shares. Then, to be safe, the shares should be re-issued pursuant to an appropriate board resolution.
Related post: How Many Shares Should My Corporation Authorize and Issue?
Dana H. Shultz, Attorney at Law +1 510 547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
I recently learned that some people are confused by the terms “shareholder” and “stockholder” and wonder what the difference between them is. Short answer: There is no difference. Each refers to the owner of one or more shares of a corporation’s stock.
“Shareholder” is the term used in the California Corporations Code, and “stockholder” is the term used in the Delaware General Corporation Law.
When referring to the law of one of those states, I use the term that appears in that state’s statutes. In general discussions, however, I tend to use the term “shareholder” because I am, and most of the corporations that I form and counsel are, located in CA.
Dana H. Shultz, Attorney at Law +1 510 547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
I have written about opportunities for foreign entrepreneurs who wish to obtain U.S. work visas (Visa Basics for Foreign Entrepreneurs Coming to the U.S., Visa Basics for Foreign Entrepreneurs, Part 2: What Constitutes Work?). This post focuses on a particularly interesting aspect of this issue: Whether and how a foreign entrepreneur can form a corporation in the U.S. and, then, obtain an H1-B visa to work for that corporation.
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Significant responsibilities or liabilities can depend on whether one is “doing business” in a state. As this post explains (principally referring to California law for examples), “doing business” can mean three different things in three different contexts.
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Dana Shultz is a business-savvy lawyer located in Northern California's San Francisco Bay Area (in the East Bay, near Oakland) who has in-depth knowledge of law, business, technology, and the needs of startup and early-stage companies.