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socrateaser
socrateaser, Attorney
Category: Business Law
Satisfied Customers: 37971
Experience:  Retired (mostly)
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My partner and I are about to open a corporation in 4

Customer Question

My partner and I are about to open a corporation in 4 months, in which I will have 80% of the share and he only has 20% because I will do most of the work. We have not registered the Corp. yet. However, he told me he has already reserved the name for the company. A few questions here:
1) What does it mean by reserving the name? So no one can take it?
2) Any risk in the future with him doing that? Since the Corp. has not been registered I would think the guy reserved the company name individually under his name? So in the future, when the company is profitable. can he just claim to be the company owner of some sort ? He was a little quick in doing that so I am worried.
Thanks
Submitted: 1 year ago.
Category: Business Law
Customer: replied 1 year ago.
The partner is an real estate & criminal attorney and I am a company technologist. Interested in the future risks of his quickly reserving the company's name. tks
Expert:  socrateaser replied 1 year ago.

Hello...you asked: 1) What does it mean by reserving the name? So no one can take it?

A: Yes. The California Secretary of State permits reservation of a corporate name so that it cannot be registered by someone else during the reservation application process.

2) Any risk in the future with him doing that? Since the Corp. has not been registered I would think the guy reserved the company name individually under his name? So in the future, when the company is profitable. can he just claim to be the company owner of some sort ? He was a little quick in doing that so I am worried.

A: Part of the process of forming a corporation is to issue shares. Shareholders will make their investment into the corpration's account in exchange for a share certificate. The certificate is proof of ownership interest. If you receive 80% of the originally issued shares, then the other shareholder cannot "own" the corporation, or take profits from it without your consent. The bank account that you open requires signatures of the officers entitled to withdraw funds. Make certain that you and the other shareholder deposit your respective investments, and all future revenue, into an account over which only you have signing authority -- or, alternatively, over which both of your signatures are required to withdraw funds. That way, you will be able to control the release of assets.

The bank will also require a corporate resolution, attested by the President or Secretary of the new corporation, authorizing the opening of the bank account. Make sure that the resolution expressly requires either your signature alone on the account, or the signatures of both you and the other shareholder. Never agree to any resolution that permits the other shareholder to open a bank account without your signature authorization on the account.

Don't start doing business until all of these formalities are completed.

I hope I've answered your question. Please let me know if you require further clarification. And, please provide a positive feedback rating for my answer -- otherwise, I receive nothing for my efforts in your behalf.

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