San Diego Corporate Business Lawyers Provide Strong Corporate Documents
The Watkins Firm has served the San Diego and Southern California business community for more than 40 years. We have helped to establish thousands of corporate entities for our clients over the years and provide sound advice and counsel through business formation and corporate entity selection.
This isn’t just about downloading a few forms and setting out to pursue business. The process of forming a corporation is much more than a few filings and a basic corporate entity. If you are serious about your company and the business you are preparing to undertake it is important to focus intently on the corporate documents themselves.
There are several documents that make up a corporation, including the shareholders’ agreement and the corporate bylaws. A shareholders’ agreement defines the roles of the shareholders and their responsibilities to each other and the company. Bylaws establish the vision and values of the company and how a corporation is to be run. These corporate documents provide important protections for the corporation as well as the shareholders who own a stake in it.
There are more than 100 separate important choices to be made concerning all facets of how the company is to be structured and protected. The Watkins Firm guides our clients through every step of the corporate formation process. We have a substantial proprietary library of proven, successful corporate documents and contracts which are battle tested. We don’t create corporate documents from scratch. We tailor existing, proven shareholders’ agreement and corporate bylaws documents to meet your unique issues, objectives and needs in a cost-efficient and timely manner.
Why Do You Need a Shareholders’ Agreement?
Why do you need a shareholders’ agreement and what should be included in this important corporate document? A shareholders’ agreement describes the roles of the shareholders, the rights and responsibilities of a shareholder, who may become a shareholder in the future as well as protections for minority shareholders. This document should provide specific formulas for dividends and other distributions of corporate profit.
Is it important to maintain a proportionate balance between the various shareholder’s interests? If so, when any shareholder must sell their shares the agreement may stipulate the value of those shares and how they are to be purchased by and distributed to existing shareholders in appropriate proportions to their holdings to protect existing power distribution. Does their need to be some form of restriction on selling or transferring shares?
These questions are best answered at the outset of a company’s formation when all the parties are energized and working together to get things up and running. Negotiating the value of a shareholder’s stake downstream when other conflicting interests are involved distracts the business leadership from running the day-to-day business and drives up the costs associated with resolving the issue or dispute at hand. How will disputes be resolved?
The shareholder agreement also stipulates how the shareholders will be involved in the active operation of the business. Will shareholders become officers of the corporation? Will they be included in the board of directors or have a say as to whom will be on the board?
The agreement should provide critical succession planning to allow the company to survive a major life events (often referred to as “triggers”) for one or more of the shareholders such as divorce, bankruptcy, incapacitation or death. What happens when a shareholder is no longer willing or able to continue to participate in the business? Who has the right to buy out the interest of another shareholder and how will the value of that stakeholder’s position be calculated if the shareholder wishes or needs to sell their interest? Usually, a “buy-sell” agreement establishes the process for valuation of the shareholders interest and how the company itself (or other shareholders) can purchase their interest.
A well-crafted shareholders’ agreement should clearly establish expectations for a shareholder, anticipate potential problems down the road before they become an issue and establish resolution(s) to protect the viability of the company while reducing the potential for litigation.
Listen to one of our Recent Sound Business Insights Podcasts:
“Episode 14 – Shareholders’ Rights and Disputes”
What Are Corporate Bylaws?
What are the corporate bylaws and what are some of the important issues this corporate document should address? The bylaws establish the way the corporation will be governed and usually define requirements for an annual meeting, and the need to keep minutes for those meetings. How will normal operations proceed and what guidelines are the company’s managers required to follow?
It’s interesting to note one of the first signals potential investors, acquisition targets or buyers, bankers and even landlords will ask to see are your corporate bylaws. The bylaws should serve as a basic set of instructions for how the corporation will be run to ensure compliance with all laws and regulatory requirements while preserving corporate efficiencies and consistency.
The bylaws usually provide basic information about the identity of the company and where it operates as well as the fiscal or calendar year it will operate within. A statement of purpose is an opportunity for the founders of the corporation to lay out their vision and values and why the company was founded. The management team of the corporation will often refer to this section of the bylaws to ensure business operations and decisions are in alignment with the company’s vision and values.
Bylaws describe how officers are put in place, the procedure for elections, voting, responsibilities and associated salaries? Will there be a board of directors and how will the board be selected? How many directors will there be, how long will they serve and what qualifications should they possess?
When and where will the company hold shareholder meetings and what quorum shall be required for the meeting ? How will notices be given to shareholders?
Are there any potential threats which need to be addressed in the corporate bylaws such as strategies to prevent a hostile takeover? How will legal disputes be resolved and in what forum? Mediation? Arbitration? What potential conflicts of interest may arise and how should they be addressed?
The corporate bylaws provide an important foundation which protects the corporate veil by ensuring consistent, efficient, legal and ethical operations. They establish a vision and a set of values which should guide the corporation in the months and years ahead.
What Happens When There is a Conflict Between the Corporate Bylaws and the Shareholder Agreement?
An effective shareholders’ agreement should also address what should happen in the event that a provision of the agreement is in conflict with the corporate bylaws. The shareholders’ agreement is a document that is highly customized to the specific shareholders and their relationship. It should take priority over the bylaws, and if a conflict is identified the bylaws should be amended to address the issue. The shareholders’ agreement and corporate bylaws should be regularly updated as part of the process of corporate governance and compliance.
Experience and Effective Business Counsel is Important When Selecting a Business Attorney
The Watkins Firm has been serving the San Diego business and corporate community for decades. We have helped to establish thousands of businesses in almost every niche imaginable. We have helped those businesses to navigate the hazards and obstacles along the way, and to survive and thrive. An attorney shouldn’t just help to negotiate and create strong legal documents.
We are here to serve as a valued business counselor and advisor during startup and often serve as a corporation’s general counsel throughout the course of that corporation’s operations. We will help you to protect your assets and your business, and take the steps necessary to achieve your business objectives.
We invite you to review the strong recommendations of our clients and contact the Watkins Firm or call 858-535-1511 for a complimentary consultation today. We will have a thorough discussion about your business, and provide a strategic plan that you can implement. You will have the benefit of the experience of thousands of businesses like yours, and a network of contacts and relationships that will help your business to grow.