Legal Question in Business Law in California
Hi there,
I'm starting a business (incorporated) with a partner. We are debating the shares; I was wondering if it's possible to incorporate in a way that all monetary of the company would be 60$ to 40% but all decision making would be 50% , 50% between the two owners?
In other words, partner A bring 60% capital to the company and all gains and losses will be 60% for his share and partner B, will bring 40% share with gain and/or losses of 40% also.
However, the power of decision making about all aspects of the company would be spit 50% for partner A and also 50% for partner B ?
Any help would be so much appreciated,
3 Answers from Attorneys
Yes you can do this in the various papers needed.
First, it's probably a good idea for people who are forming a corporation to avoid referring to themselves as "partners." The term "partner" means someone who is a co-participant in a partnership, not a corporation. I appreciate that it is convenient, but it can be misleading.
.When two or more people form a corporation, lawyers would generally recommend that they have three basic documents drawn up: articles of incorporation, bylaws, and a shareholders' or promoters' agreement. The articles of incorporation are filed with the Secretary of State to cause the corporation to be created. The other two are "private" documents that don't get filed anywhere, but contain, respectively, the rules under which the corporation will operate, and the agreement among the co-founders as to their relative rights and responsibilities.
The right place for an agreement regarding board representation, ownership percentages, decision-making, etc., is probably in the promoters' agreement, although care should be exercised to be sure the bylaws are consistent with the promoters' agreement.
Many co-promoted corporations also have so-called buy-sell agreements, sometimes part of the promoters' agreement, providing remedies in case of serious disputes, deadlocks, etc.
Organize as an LLC, not as a corporation...
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