Business Formation
What is corporate law?
Corporate law is the law that deals with the creation, operation, and dissolution of corporations. Corporate law ensures legal compliance.
What is the difference between a startup and a corporation?
A startup is an early-stage business often focused on growth, whereas a corporation is a legal entity with established operations.
What is the best legal structure for a startup?
LLCs offer flexibility and limited liability, while corporations are ideal for scaling and attracting investors.
How do I file articles of incorporation with your state, draft bylaws, appoint directors, and issue shares?
What is the difference between an LLC and a corporation?
Also read:
- https://prolegalinsights.com/20-common-corporate-law-questions-and-their-solutions/
- https://prolegalinsights.com/25-questions-entrepreneurs-ask-about-corporate-law/
- https://prolegalinsights.com/30-must-know-corporate-law-answers-for-business-owners/
LLCs offer flexibility with pass-through taxation. A corporation offers scalability, stock issuance, potential tax benefits, and more.
Do I need to hire an attorney to form my company?
No, but legal counsel can be beneficial in maintaining compliance, accurate documentation, and prevention of potential future disagreements.
Corporate Governance
A board of directors: An elected group of individuals to manage the strategic direction and major decisions of a company.
Corporate bylaws: The internal rules of a corporation to govern its operations and management.
Shareholder agreement: A contract that details rights, responsibilities, and procedures related to share transfer and disputes among shareholders.
What are officers in a corporation?
Officers include the CEO and CFO who handle the daily affairs of the corporation, all being overseen by the board.
What is a fiduciary duty?
A legal duty owed to the corporation, by which the directors and officers must exercise due care and loyalty to the best interest of the corporation.
Compliance and Maintenance
What are annual reports?
Filings that keep your corporation in good standing with the state, summarizing financial activities and updates.
What is a registered agent?
A person or entity authorized to receive legal documents on behalf of the corporation.
What are the consequences if I do not comply with corporate regulations?
There may be fines, loss of good standing, or even involuntary dissolution.
Do startups need to hold regular board meetings?
Yes, to document major decisions and comply with corporate governance requirements.
How can I protect my personal assets as a founder?
Keep business and personal finances separate and follow corporate formalities in order to maintain limited liability.
Corporate Financing
How can startups raise capital?
Startups can raise capital through bootstrapping, loans, angel investors, venture capital, crowdfunding, and issuing stock.
What is the difference between common and preferred stock?
Common stock affords voting rights, while preferred stock gives fixed dividends and priority in liquidation.
What is a seed round?
The seed stage is the initial funding stage in which startups raise capital from friends, family, or angel investors to develop their idea.
What are equity finances?
Raising funds by selling shares of the company to investors in exchange for ownership stakes.
What are corporate bonds?
Debt instruments issued by corporations to raise capital, requiring repayment with interest.
What is a term sheet?
A non-binding document outlining the terms of an investment or financing agreement.
Contracts and Agreements
What is a non-disclosure agreement (NDA)?
A contract that prevents the unauthorized disclosure of sensitive information shared between parties.
What is a founders’ agreement?
A document that establishes the roles, responsibilities, and ownership shares among the business’s co-founders.
What if a business contract is breached?
Remedies include monetary damages, specific performance, or the termination of the agreement.
Do I need a written contract for every transaction?
Yes, as this will provide clarity on the terms and guard against potential disputes.
What is intellectual property (IP), and how do I protect it?
Patents, trademarks, copyrights, and trade secrets. Protect it with registrations and contracts such as NDAs.
Employment and Partnerships
What are independent contractor agreements?
It is the agreement on the terms of work between contractors and their employer, thus giving clarity and preventing employee misclassification.
Do startups need employment contracts?
Yes, this is a very important outline in the job role, compensation, and requirements on confidentiality.
What is a partnership agreement?
A contract that outlines the role, responsibility, and profit-sharing terms of business partners.
Can startups provide equity for employees?
Yes. Through stock options or equity grants as an incentive of remuneration.
Risk Management
What is piercing the corporate veil?
When courts hold shareholders personally liable for corporate debts due to improper conduct or failure to maintain separation.
What is liability insurance, and why is it important?
It saves your business from being sued and from losing money resulting from property damage, injury, or mistakes.
What is an indemnification?
A contractual agreement where one party agrees to make good another’s loss or damages.
Growth and Expansion
Do corporations have to file in other states?
Yes, if you are conducting business in multiple states, you have to file as a foreign entity and comply with state laws.
Can startups expand to other countries?
Yes, but they need to conform to the local laws, tax authority, and employment law of the destination country.
What is a Merger?
Corporate strategy whereby two companies become one entity.
What is an acquisition?
It refers to a company buying another company, hence taking over that other company’s operations and assets.
Dissolution and Bankruptcy
How do I dissolve a corporation?
File articles of dissolution, liquidate debts, settle the balance by distributing the remaining assets and give notice to all stakeholders.
What if a startup goes bankrupt?
Depending on whether it is Chapter 7 or Chapter 11, the company will liquidate assets or reorganize in order to repay creditors.
The following are the FAQs regarding corporate law that may be understood by startups and corporations.