Q: I wanted to start my own business, so I created a New Hampshire corporation by filing Articles of Incorporation with the New Hampshire Secretary of State. While I was researching how to establish a New Hampshire corporation, I saw that once the corporation is formed, I need to have a meeting of the incorporator to elect a board of directors, a meeting of the board of directors to issue shares in the corporation and to adopt bylaws of the corporation. I only intend for this to be a small business, and I am the only owner, so do I still need to do all of those things?
A: This is a very common question business lawyers are asked. Even if you are the lone incorporator and intend to be the sole shareholder, it is still imperative that you finish “setting up your business.” When you finish setting up your business, aside from complying with the New Hampshire Business Corporation Act, you solidify and document the ownership of the company. In addition, documented ownership of the shares of the company and a copy of the bylaws will need to be provided to a lender if the company ever needed to obtain financing from a financial institution, or if you were ever in a position to sell the company to a third party. While you can document and reconstitute the company after the fact – the election of the initial board of the directors by the incorporator and the issuance of shares by the initial board of directors – this is not without risk. If these actions were documented after the fact, especially the issuance of shares of the company, this creates risk to the company, as a third party could question this documentation and state that they too were entitled to shares of the company. While you may never be able to protect against a third party claiming they were entitled to shares of a company, if the initial issuance of shares is documented, this documentation makes the argument from a third party that much more difficult to make. Overall, while it may be more work at the onset to finish setting up your business, or it may cost you a little more money to do so, it is always worth it in the end.
Know the Law is a bi-weekly column sponsored by McLane Middleton. Questions and ideas for future columns should be emailed to [email protected]. Know the Law provides general legal information, not legal advice. We recommend that you consult a lawyer for guidance specific to your particular situation.