What legal documents are necessary to start a company?

One can form a new corporation in minutes on the Secretary of State website, but much more documentation is required to establish rights and protocols with respect to ownership and management of the corporation.

To do it right, all of the documents listed below would be necessary in a corporation that is preparing to grow without legal hiccups.  Fortunately, over the years, this documentation has become fairly standardized, and is not expensive to prepare.

 
Formation of Corporation:
 
Master Business License Required by the State of Washington.
Local Business License May be required by your local city or county.
Articles of incorporation This is the foundational legal document of the corporation.  It is required by statute.  It establishes the classes and number of authorized shares, the rights and preferences of the stock, fiduciary and liability standards for board members, any special voting requirements, and other fundamental corporate matters.
Bylaws The Bylaws establish rules regarding the board of directors, shareholder meetings, and other matters.  Sometimes they contain indemnification rights for officers and directors.
Organizational resolutions These first resolutions of the board of directors authorizes the first issuance of stock, appoints officers, establishes authority to open bank accounts, and other matters
Subscription Agreement   This is the agreement between the company and a purchaser of stock.  Depending on choices they make, founders may have a simple subscription agreement, or they may have extensive documentation for restricted stock.
Stock Certificates The document that certifies to a shareholder’s ownership of shares.
Stock Ledger Ledger that shows the history of all issuances, transfers, and cancellations of stock.
Cap Table The Capitalization Table is derived from the Stock Ledger.  It shows the current ownership of the company, amounts paid and percentage interests.  It includes options, warrants, convertible notes, and other rights to purchase or be issued stock of the company.
Shareholder Agreement This sets forth agreements among the shareholders.  Common terms are rights of first refusal and co-sale rights with respect to proposed transfers of shares, rights to approve certain major corporate actions, protocols if someone dies or gets divorced, and composition of the board members.
Asset Assignments Usually the founders have created some IP before the company is incorporated.  IP could include software, a patent application, a business plan, a potential customer list.  All of these things should be assigned to the company when it is formed.  There may be other assets, such as contracts or office equipment, that need to be assigned to the company.
S Election For an S Corporation only, a document filed with the IRS that establishes the company’s election.
   
Limited Liability Agreement For a limited liability company, the Limited Liability Company Agreement (sometimes called an Operating Agreement) will replace the Articles of Incorporation, Bylaws and Shareholder Agreement.
   
Equity Compensation:
 
Founder Restricted Stock Agreement Founders often impose buy-back restrictions on their stock that incentivize founders to stay with the company.  See my post on the subject. 
83B Election If the founders take restricted stock, the 83B election is a necessary form to file with the IRS to obtain the desired tax treatment.
Stock Option Plan To issue stock options qualified for certain tax treatment, the options must be issued persuant to a written plan approved by the board of directors and the shareholders.
Employee Stock Option Agreement This document contains the Grant Notice, which sets forth the number, type, exercise price, and other terms of the the options.  The Stock Option Agreement, together with the Stock Option Plan and other incorporated documents, establishes and governs the employees rights with respect to the granted options.  
Authorizing Resolutions The board of directors and shareholders must approve the stock option plan, including the amount of shares set aside for the plan.
   
Human Resource:
 
Employee Offer Letter For the general employee, this agreement will document employment-at-will status and clarify compensation and benefits.
Form Independent Contractor Agreement Most startup companies find it necessary or beneficial to hire consultants or other independent contractors.  A well drafted Independent Contractor agreement will provide for important terms such as the nature of the relationship (not an employee), scope of work, payment terms, and most importantly, ownership of intellectual property created under the contract.
Worker Intellectual Assignment Agreement The company should have a form confidentiality and intellectual property assignment agreement for employees and for independent contractors.
   
Other Agreements
In addition to the above, a company may have supply agreements, customer agreements, distributor agreements, service contracts, agreements with advisors, and promissory notes from founders or other supporters to the company.

 

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