Every giant company started somewhere as a tiny entity or maybe just one person.
When businesses are young, the focus is on things like product development and survival. Understandably, the focus is not on all of the different legal requirements for forming an entity or maintaining the entity after it is formed. These are details that are often pushed off to the point of “success.” Deals are done to bring in the capital with often little thought being given to the consequences of the deal in the future. For instance, a company may give an ownership stake of say 5% to someone. The 5% usually does not come with the ability to manage the affairs of the company, however, the 5% owner continues to own an interest in the company forever and less something officially changes that.
As a company grows, employees multiply and founders look for serious capital infusion, the need for books and records to be clean and neat increases. It is at that point where a renewed focus is put on the organizational documents and the records of the company and this focus often discloses issues that need to be corrected or cleaned up.
Sometimes, a “cleanup” means that the company has to pay a substantial amount of money to someone that either is an owner of the company or claims to have an ownership interest in the company. Mark Zuckerberg in the continuing saga of Facebook’s founders and owners is a great example of where issues popped up after the company became successful.
Prevent these issues by doing it correctly from the start:
correctly forming the company with your Secretary of State, correctly getting the initial organizational documents drafted and signed tracking major events of the company in being certain to understand all of the consequences of giving anyone an ownership interest in the company.
These are the types of issues I work on frequently with clients, if I can do anything to help out with your business, please let me know.
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