The High-touch Legal Services® Blog…for Startups!

© 2009-2017 Dana H. Shultz, Attorney at Law

What is an Operating Agreement?

The first page of an operating agreementI have used the term “operating agreement” in quite a few of this blog’s posts. However none of those posts explains in detail what a limited liability company (LLC) operating agreement must contain. This post provides that information.

The required contents of an operating agreement depend on the state in which the LLC is formed.

Operating Agreement – California

In California, where I practice, the definition of an operating agreement is set forth in Corporations Code Section 17701.02(s). (more…)

How to Dissolve a Delaware Corporation or LLC

Seal of the Delaware Division of Corporations, symbolizing this post by Dana Shultz about how to dissolve a Delaware corporation or LLCThis post discusses how to dissolve a Delaware corporation or LLC (limited liability company) – i.e., how to terminate the entity’s existence.

For information about dissolving California entities, see How to Kill Your Company when that’s the Only Choice. (more…)

Entity Conversion Can Be Easy – If You Know What You Are Doing

Logo for Quora, where Dana Shultz answered a question about entity conversionThis post about entity conversion is an expanded version of an answer that I provided on Quora yesterday. (How do I convert a Delaware LLC to a California LLC?)

In my experience, entity conversion typically occurs for either, or both, of the following reasons.

  1. The need to convert a limited liability company (LLC) to a corporation to accept an investment from an institutional investor, such as a venture capitalist.
  2. The need to move an entity from one state to another. This typically occurs because the founder relocates, or because an investor prefers to invest in a Delaware corporation.

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How Do We Issue Corporate Shares?

Share certificate, symbolizing how to issue corporate sharesSeveral weeks ago, I wrote about how to issue LLC membership interests. In this post, I am addressing how a small corporation should issue corporate shares.

To start, one must examine the Certificate of Incorporation (Delaware) or Articles of Incorporation (California) to determine the maximum number of shares that may be issued. (To simplify this discussion, I will assume that only one class of common shares has been authorized.) A corporation may not issue more shares than are authorized. (more…)

Who Appoints the Members of a Board Committee?

Logo for Quora, where Dana Shultz answered a question about appointing members of a corporate board committeeThis post addresses a generalized version of a question that I answered on Quora concerning committees of corporate boards of directors. Q. Who appoints the members of a board committee?

A. Appointment of board committee members is governed by the corporation’s bylaws, or by applicable statutes if there are no bylaws. In my experience, bylaws (or statutes) state that a board committee is appointed by a majority of the board members. Committees are not appointed by the CEO or the Chair of the Board. (more…)

Can I Form a Corporation with a Future Filing Date?

Logo for Avvo, where Dana answered a question about future filing dateThis post expands upon an Avvo answer that I provided. Q. Can I form a corporation with a future filing date?

A. Yes. The answer will vary slightly depending on the state of incorporation.

Future Filing Date in Delaware

If you want a future filing date in Delaware, Section 103(c)(4) of the General Corporation Law says, in relevant part:

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Required Officers – California Corporations are Unique

Cover of the California Corporations Code, which has a statute about required officers in corporationsOfficers conduct a corporation’s day-to-day business. Among the states, California law is unique in its set of required officers.

California Corporations Code Section 312(a) states that each California corporation must have:

  • A chairman of the board or a president or both;
  • A secretary; and
  • A chief financial officer.

Additional officers are optional.

That Code section also provides that the president is the chief executive officer of the corporation, unless the articles of incorporation or the bylaws state otherwise.

Other states typically take an approach similar to that specified in Delaware General Corporation Law Section 142 (emphasis added):

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What is an Inc. and Why Should I Want One?

Logo for Inc

Frequently, an international prospect or client will tell me that he wants to create an Inc. to run his business in the in the United States. This post explains what an “Inc.” is and where the term comes from.

History and Other Countries

For centuries, in the interest of fostering economic activity, governments have recognized certain types of businesses as separate legal entities. Investors’ liability is limited to the amount invested (“limited personal liability”). Investors’ other assets, beyond the amount invested, may not be taken to satisfy the business’s debts or other obligations.

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Directors’ Inspection Rights Include (Almost) Anything in California

Picture of a fox hunt, symbolizing corporate directors' inspection rights

I have written about shareholders’ rights to inspect corporate financial records and shareholder lists. This post discusses directors’ inspection rights, which are far greater.

California Corporations Code Section 1602 states:

Every director shall have the absolute right at any reasonable time to inspect and copy all books, records and documents of every kind and to inspect the physical properties of the corporation of which such person is a director and also of its subsidiary corporations, domestic or foreign. Such inspection by a director may be made in person or by agent or attorney and the right of inspection includes the right to copy and make extracts. This section applies to a director of any foreign corporation having its principal executive office in this state or customarily holding meetings of its board in this state. (more…)

Who Gets to See the Shareholder List?

Pidture of page from ship's log book

The founder of a closely-held corporate client, knowing that some employees soon would be shareholders, recently asked whether those employee-shareholders would have the right to find out how many shares he owns. Here is the information I provided.

Because the client is a California corporation, Corporations Code Section 1600(a) governs who gets to see the shareholder list. That Section states, in relevant part (emphasis added):

A shareholder or shareholders holding at least 5 percent in the aggregate of the outstanding voting shares of a corporation…shall have an absolute right to…inspect and copy the record of shareholders’ names and addresses and shareholdings during usual business hours upon five business days’ prior written demand upon the corporation….

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