C corporation

Questions on starting a Corporation

Dylan Wynn Founder of corporation

November 27th, 2018

1. Should I issue myself 2/3 of all shares as the founder?

2. Should the salary of directors and officers be in the Bylaws?

3. What should I do for the physical address of corporation when I don't have an office for corporation yet?

4. Should I hire a CFO and Secretary before I incorporate?

Dane Madsen Organizational and Operational Strategy Consultant

November 27th, 2018

1) No. You will set an "authorized" number of shares. You can issue yourself any amount you want and since you will be the only shareholder immediately, you have 100% of the "outstanding" shares. When setting these up, it is better to not issue all the shares initially since you should reserve some for an incentive plan and other key employees. You want to carefully select the incorporation state because some charge fees on the total number of shares while others (like DE) have a an option based on value of the shares. In this example you may want to "authorize" 1 million (the # is not material - the percentage outstanding is) shares, issue yourself 500,000, reserve 200,000 for an option or RSU pool (pretty typical - it can be 10 to 20 %, but investors want to know there is enough reserved that they will not be diluted when you have to set up the plan - anything not issued will not be dilutive), and then keep the rest aside for other key employees and potential investors. By doing it this way, you avoid having legal costs to amend and restate the cap tables to add more shares.


2) No. You should allow for the payment of a salary at the option of the shareholders and Board, but you do not include any amounts (if I understood your question).


3) For this you can use a Registered Agent, the person (e.g. your legal counsel) or a firm that exists for this purpose (often a service they offer if you use an online incorporation firm). You can change the registered agent at any point in the future by notifying the state of incorporation. The fee for RA services is usually <$250 a year. They agree to accept service of any legal documents. If you are fluid in your location for now, use one of those. You are held liable for service for documents in any case, so if you failed to change an address and act as your own RA, you get no relief.


4) Get a CFO service who knows all this first. They can do this and many other administrative tasks critical to your governance that will haunt you in the future if not done right.

Dane Madsen Organizational and Operational Strategy Consultant

November 28th, 2018

Dylan -


After I answered, this came into my email from Founders Space. Since you are in the Bay Area, you may want to avail yourself of this resource at UC Hastings Law.


Dane


This is the info from the email:


"The Startup Legal Garage at UC Hastings is a selective program that offers free legal services to early stage technology and biotech companies. These free legal services are worth between $15,000 to $30,000 to an early stage company and are performed by top UC Hastings law students working under the supervision of attorneys from prominent law firms such as Wilson Sonsini, Pillsbury, MoFo, and DLA Piper. We are currently accepting applications for our next session, which will run from January 7 through May 2. You do not have to be a Silicon Valley startup to qualify.


Their program is divided into two modules: Corporate and Patent. In the Corporate Module, the student/lawyer teams can handle a wide variety of matters, including Entity Formation, Terms of Service, Licensing, Trademark, Regulatory research, Contracts, Privacy Policies, Employment matters, Cap Tables, and more. On the Patent side, they focus exclusively on patent landscape surveys. Their past clients have come from a variety of industries, including biotech, medical devices, finance, mobile services, payments, gaming, identity protection, bitcoin and fashion."


https://www.startuplegalgarage.org/

Thomas Fraser Entrepreneur

November 28th, 2018

Dylan,


The answers to all of your questions is that you're steps ahead of yourself.


Why are you seeking to form a corporation and not an llc? If you have 7+ figure capital walking in, you might have enough that justifies prudent planning to avoid taxation later on when you restructure. Most people don't and they form a corporation when they should have formed an LLC. At the risk of sounding facetious; a Hotdog Cart shouldn't be a corporation. However, it's a different story for a hotdog cart manufacturer that's looking to expand into a global market with subsidiaries.


It's true that there are benefits to C-Corporations like the ability to issue bonds, or issue stock. Both of those exist as options for LLCs in the form of bank loans and partnerships.