Corporations generally are understood to be for-profit, and the board of directors and the officers of the corporation are required by law to manage the corporation in the financial interests of the shareholders. In a sense, the financial interests of the shareholders are supreme to any other consideration that the management of the corporation takes into account. For most enterprises this makes sense, but in certain cases corporations are organized to serve interests other than the financial interests of the shareholders. In these cases, an enterprise might consider forming a non-profit, benefit, or flexible purpose corporation.
Introduction to Corporations
October 15, 2012 By
In kicking off my series on different business entity structures, I’ll start with corporations.
What is a corporation?
A corporation is a limited liability entity that exists separately from its legal owners. One or more owners hold shares of stock in the corporation that grants them certain economic rights to the profits and residual assets of any business operated by the corporation, as well as certain voting rights as to the management of the corporation. The corporation is able to enter into its own contracts and legal relationships with other parties, which is part of what protects the shareholders from liability. Except as described below in regards to an “S” corporation, a corporation is taxed separately and in addition to its owners, meaning that when a corporation earns a profit that amount is taxed by certain states and by the federal government. In addition, once the corporation takes those profits and distributes them to shareholders as dividends, the shareholders will also be taxed on that income (which is often colloquially referred to as “double taxation”).
Considerations in Business Formation – Part II (Initial Capitalization)
October 1, 2012 By
I’ve been covering the steps involved in the Business Formation process. To recap, the steps are:
- Planning
- Entity selection
- Filing
- Initial governance matters
- Initial capitalization matters
- Initial agreements among stakeholders
My last post covered the Planning, Entity Selection and Filing steps, which takes us to the point where the state has returned stamped documents establishing a new entity. Now we are at a complex stage: establishing how the business will be managed, initial capitalization, and what the rights of all stakeholders will be going forward.
Considerations in Business Formation – Part I
September 27, 2012 By
In keeping with my promise to start at the beginning, my next few posts will be on business formation and subsequent posts will be on the different business entity types. Today I will focus on a few basic questions surrounding business formation, and the first few steps in business formation.
What does business formation mean in the legal context?
In a legal context, business formation is the process of planning and documenting the initial formal relationships among stakeholders that will govern the ownership and management of the business as it moves forward. It encompasses planning and executing choices regarding entity structure, governance, capitalization, and tax strategies for the business as well as its founders and investors.
Start at the Beginning
September 25, 2012 By
For the first post in my blog, the immediate question was “Where should I start?” Should I write an analysis of negotiation strategies in subsequent rounds of VC financing? What about methods for organizing stockholder, debt holder and optionee documentation? Or maybe my plan for listing companies on the NYSE?
Of course not. I should take the advice I offer entrepreneurs: start at the beginning! I know that sounds pat, but it is something we all need to remember. It’s great to think big, but first you have to execute the details. In a start-up, entrepreneurs need to focus their plans on developing a Minimum Viable Product, not on dethroning Facebook.
So for my first post, here are two very basic questions entrepreneurs should ask themselves when they are just cooking up a plan for a new business.
Welcome to my Law and Entrepreneurship blog!
September 24, 2012 By
Welcome to my blog. I’m looking forward to engaging in interesting discussions on entrepreneurship, law and business. Thanks for coming by, and make sure you sign up for my newsletter, subscribe to my RSS feed, and come back often!