Corporate and Securities Law FAQs
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What type of business entity should I form?
The primary alternatives are a corporation, which can be either taxed as a separate entity (a "C-Corp") or on a "pass-through" basis (an "S-Corp"); a limited liability company; a limited partnership; or a general partnership. The selection is based on many factors which take into account the type of business activities that will be conducted; where the business will operate geographically; the number of investors which the business will have; etc. Tax considerations also play an important role in determining which business structure is most appropriate.
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Do I need to comply with securities laws when I am raising a small amount of money to start a business?
Yes. If all of the investment capital is coming from persons who will be actively working in the business as directors or officers, then the requirements will be minimal. However, if any capital is raised from persons who will not be actively involved in the business as a director or officer, whether such capital is in the form of equity or debt, you will be required to comply with the federal and state securities laws in connection with raising such capital.
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Why do I need to maintain corporate minutes?
There are several reasons why corporate entities need to maintain corporate minutes:
- It usually is required by a company's by-laws.
- It provides legal protection to the officers of the corporation who take actions on behalf of the corporation with the authorization of the board of directors.
- It is a critical factor used by courts in determining whether to pierce the corporate veil of limited liability. Failure to keep proper corporate records, such as a failure to keep minutes of board of director and shareholder meetings (or written consents in lieu thereof), is a significant factor used by courts in finding shareholders personally liable for the obligations of their corporation.
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Can I accept an investor’s payment and follow up later on with the legal documents?
No. The legal documents will contain provisions which assure the recipient of the funds that the investment is legal. In the absence of that, accepting the funds may result in the company having conducted an illegal offering. There also can be state and federal filing requirements triggered by accepting the funds.