Organizing a business can be a complex journey. Developing and filing the appropriate documents will create the foundation for a successful business.
Many entrepreneurs will develop a mountain of documents that appear to be vital for creating a startup, only to find they are still missing information. So what are the key documents necessary for organizing a business and establishing a company?
Articles of Organization
This is documentation filed within a State for Limited Liability Companies, (LLCs). These articles typically include the business’s name and address, the names and addresses of the LLC members, a statement indicating the business purpose of the LLC, and its registered agent. Articles of Incorporation, also known as Certificate of Incorporation or Corporate Charters, serve the same general purpose for corporations; except that they also include details surrounding the amounts and types of stock the corporation is entitled to issue. (Note: Either Articles of Organization or Articles of Incorporation are required, dependent upon if the legal structure chosen is a LLC or a corporation.)
Employer Identification Number (EIN)
A unique, nine-digit identification number used by the Internal Revenue Service, (IRS). This number is assigned to business entities to identify employers as part of the tax reporting process. In order to obtain an EIN, business entities must file to the IRS.
Business and Other Licenses
Federal, state, and local government regulations often require these documents. This includes a variety of licenses, certifications, and other documentation depending on the type of business that permits companies to operate under their statutes.
The members of a LLC execute the Operating Agreements. These documents define the framework or rules under which it operates. The agreement provides binding guidelines which govern the internal operations and the decision making structure within the organization.
Corporate or Company By-laws are similar in purpose to Operating Agreements. They are written agreements established for the purpose of defining how corporations will operate and be managed. Corporate By-laws are established specifically for corporations as opposed to LLCs; therefore, they also deal with issues related to the boards and issuance of shares. This includes shareholder rights, provisions to select officers and directors, and it delineates the various governance rules under which the corporation operates.
A Founder’s Agreement is a related agreement that specifically addresses issues between the founders such as their equity splits, the compensation of the founders, and vesting issues. (Note: Either Operating Agreements or Corporation / Company By-Laws are appropriate, dependent upon if the legal structure chosen is a LLC or a corporation. Founder’s Agreements are supplemental to both.)
These typically include Non-Disclosure Agreements (NDAs), a.k.a Confidentiality Agreements, and are formal legal agreements between an employer and an employee. The NDA’s purpose is to provide a process under which employees maintain the company’s confidential or sensitive information so it is not shared or accessible by third parties.
Depending on the level of their position within the company, an employee’s agreement may also include Non-Compete Clauses. Depending on the jurisdiction, this may prevent an employee from directly competing against the employer should they cease their employment. Similarly, Non-Solicitation Clauses prevent employees from soliciting employees or customers, should they no longer work at the company.
Finally, Intellectual Property Assignment Clauses assign rights of discoveries during an employee’s tenure to the company. Additionally, freedom from Conflict of Interests Clauses validates that the employee is free from conflicting relationships with third parties. These clauses and documents are typical in the employment agreements of personnel.
Organizing a Business can be a complex process.
Developing and filing the necessary documents will provide the initial foundation for startups. However, the branding and identity of the company should be considered equally as important. These issues include, but are not limited, to naming the startup, creating appropriate logos and obtaining trademarks protecting the right of their use, obtaining website URLs and social media handles and identifying initial channels to market.
NOTE: This article may discuss issues for which legal advice should be considered prior to a decision or agreement with a third party. It should be noted that the author is not an attorney, and FundingSage is not a law firm. FundingSages’ employees and affiliates do not provide legal advice. We recommend you seek the services of an attorney if legal advice is required.