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

© 2009-2019 Dana H. Shultz, Attorney at Law

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…)

How Can I Move My Corporation to Another State?

Logo for Quora, where Dana Shultz answered a question about moving a corporation to another stateThis post addresses how one may move an existing corporation to another state. It is based on a question that I answered on Quora (What state is best to incorporate an S-corp if you plan on moving away?).

I find that for most entrepreneurs, it makes sense to incorporate in the state where the entrepreneur resides. As I wrote in In which State should My Startup Incorporate?

Incorporate in the state in which you are doing business, unless there is a good reason to do otherwise [in which case the other state chosen probably will be Delaware]. (more…)

Must a Corporation Issue All Authorized Shares?

Sample stock transfer ledger, symbolizing that a US corporation need not issue all authorized shares

Sample Stock Transfer Ledger

This post is based on a conversation I had with a foreign client recently. Q. Must a corporation issue all authorized shares?

A. No, a corporate may, but it does not need to, issue all authorized shares.

Foreign Parent Audit

This question arose because my foreign client was being audited. The auditors thought that they had uncovered a problem.

(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…)

What if I Don’t File a Limited Offering Exemption Notice?

Banner for California Department of Business Oversight, where Limited Offering Exemption Notice is filedThis post is based on a question that I answered on Quora: What happens if you do not file a Limited Offering Exemption Notice in California?

Limited Offering Exemption Notice Requirement

I first addressed the Limited Offering Exemption Notice in Section 25102 (f) – Securities Law Compliance if You Incorporate in California. As that post explains, LOEN filing is required for corporate share issuances that are exempt from securities registration requirements in California.

(more…)

Future Services Can’t Buy Shares in CA but *Can* Buy LLC Membership

Label saying "100% free", symbolizing buying an equity interest by future services rather than cashFuture services seem like a great no-cost way to buy equity in a startup. In California, however, whether you legally can buy equity with future services depends on whether the startup is a corporation or a limited liability company (LLC).

Corporations Code Section 409(a)(1) specifies the types of “consideration” that can be paid for corporate shares. These include, for example, “money paid; labor done; [and] services actually rendered to the corporation or for its benefit or in its formation or reorganization”.

However, “neither promissory notes of the purchaser [subject to certain exceptions] nor future services shall constitute payment or part payment for shares of the corporation“. So a California corporation cannot grant shares in exchange for future services.

(more…)

Can I Have a Corporation with Multiple Businesses?

Photo of a man juggling, symbolizing a corporation with multiple businessesThis post is based on a question I have seen online many times. Q. Can I have a corporation with multiple businesses?

A. Yes, you can have a corporation with multiple businesses. Furthermore, those businesses need not be similar or related. So, for example, your corporation might do both software development and per sitting.

However, there is a more important question. Should you have a corporation with multiple businesses?

(more…)

Enforcing Inspection Rights – “Absolute” Does not Mean “Absolute” in California

Picture of a magnifying glass over a page, to symbolize enforcing inspection rightsIn Directors’ Inspection Rights Include (Almost) Anything in California, I discussed corporate directors’ inspection rights. Quoting California Corporations Code Section 1602, I noted that directors have an “absolute right” to inspect corporate records and physical properties. This post explains that in enforcing inspection rights, “absolute” is not really “absolute”.

The fundamental limitation, established in case law, is that a director may not use inspection rights to harm the corporation. (more…)

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):

(more…)

What is a Stock Assignment Separate from Certificate?

Image of a Stock Assignment Separate from Certificate

I recently introduced a client to the document called a Stock Assignment Separate from Certificate. While well-known to business lawyers, this document is not known to most business owners.

The client was implementing employee and management stock plans. To provide stock for the plans, the corporation was going to repurchase shares from the founders.

The CFO asked whether and how the founders should complete and sign the assignment provision on the back of their share certificates.

(more…)