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lwpat
lwpat, Attorney
Category: Business Law
Satisfied Customers: 25386
Experience:  Attorney with over 35 years of business experience.
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When issuing new stock for a startup C-Corp are the following

Resolved Question:

When issuing new stock for a startup C-Corp are the following legal consideration in exchange for no par value shares?

1) Reduction in commission? - My master sales rep is giving up part of his commission in exchange for 2% equity. Is this okay?

2) Past services before company formed? - I'd like to give a few family members some equity in exchange for past services they did while I was still an LLC. Can past services before the company incorporation be used as exchange for shares?

Thanks!
Submitted: 5 years ago.
Category: Business Law
Expert:  lwpat replied 5 years ago.
1) Reduction in commission? - My master sales rep is giving up part of his commission in exchange for 2% equity. Is this okay?

That is OK

2) Past services before company formed? - I'd like to give a few family members some equity in exchange for past services they did while I was still an LLC. Can past services before the company incorporation be used as exchange for shares?

That is also OK. Their cost basis in the stock would be zero.

However, you need to be very cautious as to minority shareholders. That can be trouble in the future. You need to have an agreement as to being able to buy back the shares. For example, one party dies and then you are dealing with their heirs.
Customer: replied 5 years ago.
Good point about being catious with minority shareholders. My plan was to give four family members each 1%. When I go to sell the company in a few years I want my family to get some money and I thought it was better for taxes to give them shares now instead of me giving them money out of my personal income once I do sell. Do you not recommend that strategy?

Should I perhaps stipulate in the agreements that the shares are non-transferrable? If the shareholder dies and the company buys back their shares what price is paid for a private company? Can I specify that the company can buy the shares back at the original price?

I've written the bylaws so that a quorum is met for both the shareholders meeting and the directors meeting with just me being present. In such a case, what would the risk be with having minority shareholders? Can I specify in the stock purchase agreement that they have no voting rights even though I only have one class of stock?

Thanks!
Expert:  lwpat replied 5 years ago.
Can I specify in the stock purchase agreement that they have no voting rights even though I only have one class of stock?

No you cannot.

When I go to sell the company in a few years I want my family to get some money and I thought it was better for taxes to give them shares now instead of me giving them money out of my personal income once I do sell. Do you not recommend that strategy?

That is fine.

Should I perhaps stipulate in the agreements that the shares are non-transferrable?

You can put that the company has the right of first refusal.

If the shareholder dies and the company buys back their shares what price is paid for a private company? Can I specify that the company can buy the shares back at the original price?

You can state that the shares will be sold back at book value.

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Customer: replied 5 years ago.
If I state in the organizational minutes that the "company has the right of first refusal at book value for all shares held by minority shareholders" does that cover both a shareholder dieing and a shareholder wishing to transfer his stock? Is it okay that I specified this as only true for minority shareholders (ie not me)?

Thank you.
Expert:  lwpat replied 5 years ago.
No you need an agreement with the individual shareholder and also mark on the share that it is subject to that agreement.

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