Another Corporate Question

[Super Mom]

If a lawyer sets up a c-corp and "advises" them to issue stock ASAP and the client doesn't do that, who is in control of the corp. until the stock is issued? The board?

[Burke]

Depends on what you mean by "control." Usually the CEO & other officers have authority to make daily decisions on how corp is run (subject to board allowing them to continue.) BOD has to authorize certain actions, like borrowing monies, investing monies, etc, etc. via resolutions. Should have an operating agreement in place. Also, does not the paperwork filed with the state indicate how many shares are issued originally? Company records should show what is Treasury stock and/or any other owners. Suggest posting your question to the attorney.

[Super Mom]

Depends on what you mean by "control." Usually the CEO & other officers have authority to make daily decisions on how corp is run (subject to board allowing them to continue.) BOD has to authorize certain actions, like borrowing monies, investing monies, etc, etc. via resolutions. Should have an operating agreement in place. Also, does not the paperwork filed with the state indicate how many shares are issued originally? Company records should show what is Treasury stock and/or any other owners. Suggest posting your question to the attorney.

Thanks Burke you're so much help!!! The "bylaws" and "operating agreement" is the same thing right, the form that says "bylaws" is very long and pretty detailed. The articles of incorporation just list the shares authorized and the par value, not the shares actually issued!

[JohnH]

If there's some sort of dispute surrounding who's in charge, then you could have a sticky problem if no stock was issued, because the formation of the Corp was never legally perfected. That could raise all sorts of problems. Trying to sort out ownership issues is not a good time to be tidying up organizational deficiencies.

But if it has been operating since its formation without technically issuing stock, then the shareholders generally know who they are and that could be easily documented after the fact. That isn't exactly proper, but some defects can only be corrected by doing the next-best thing.

If the company has been operating for a while, then there should be banking resolutions or other paperwork specifying who the officers are. it seems logical that assumption of the duties of officers is an indication of who the shareholders were intended to be in an informal sense (although technically there's no relationship between the two terms). Also, who out up the initial investment and paid the fees for the incorporation process? Somebody had to produce some cash, which is the best indicator of who owns the company in the absence of any other info.

If you have by-laws, and if they were properly prepared, then the first order of business during the organizational meeting should have been issuance of shares. (that's also the meeting where the bylaws were supposed to be actually adopted). But maybe the lawyer handed them a set of boilerplate bylaws and said "fill in the blanks".

[Super Mom]

If there's some sort of dispute surrounding who's in charge, then you could have a sticky problem if no stock was issued, because the formation of the Corp was never legally perfected. That could raise all sorts of problems. Trying to sort out ownership issues is not a good time to be tidying up organizational deficiencies.

But if it has been operating since its formation without technically issuing stock, then the shareholders generally know who they are and that could be easily documented after the fact. If the company has been operating for a while, then there should be banking resolutions or other paperwork specifying who the officers are. it seems logical that assumption of the duties of officers is an indication of who the shareholders were intended to be in an informal sense (although technically there's no relationship between the two terms).

If you have by-laws, and if they were properly prepared, then the first order of business during the organizational meeting should have been issuance of shares. (that's also the meeting where the bylaws were supposed to be actually adopted). But maybe the lawyer handed them a set of boilerplate bylaws and said "fill in the blanks".

That's what the lawyer did. I'm going to help them get set right after the fact, no disputes thank God, my knowledge on corporate law is very limited. Are the forms titled "by-laws" probably the same as an operating agreement as there is no form titled as such. The one entitled "by-laws" is very thorough. Thanks!!

[JohnH]

I think of an operating agreement as applying to an LLC rather than to a corporation, but I may be wrong about that. By-laws are definitely a corporate document.

[Burke]

I have a book in my office titled The Complete Book of Corporate Forms. It states "At the very first meeting of directors, much of the procedure that the corp will follow is established. The bylaws, the corp seal, stock certifcates and record books are adopted and the company's business is launched." You might check the minutes of this first meeting and see what they say. A sample form in this book detailing the minutes of that first meeting includes such items as ratifying and adopting the actions of the "incorporators and subscribers to the capital stock of the corporation," nomination and election of officers, presentation of proposed share certificates for approval, authorization to pay expenses of its organization, authorizing the appropriate persons etc. to open a bank account, (President) pay all fees and operating expenses,(Treasurer), authorization to procure all books (Secretary) etc, -- approval of the bylaws, corporate seal, and review of and approval of offers for the stock including the names of those persons and the price paid, adoption of the stock and stock transfer book. It is recommended if the original minutes did not include all these things, then it may wish to be rectified. All these items should be attached to the minutes. Does that help?

[Super Mom]

Yes, that helps very much!! thanks!!!!!

[Super Mom]

One more question on the original stock issue, should they pay an amount for the stock, and it can be under par value if approved by the board, correct?