Putting tax considerations aside because I don’t practice in the area of tax law, if you are about to start a business and contemplating where to incorporate or what type of business to form, i.e., LLC or C Corp, you might want to contemplate incorporating your business in Delaware. Filing in Delaware still allows you to operate your business in New Jersey. Please contact New Jersey Business Startup Lawyer Andrew S. Bosin at 201-446-9643 for all your Delaware incorporation contracts agreements legal negotiating needs.
If you are an LLC in New Jersey and are not governed by an Operating Agreement that defines the rights of members with regard to distributions, voting rights, fiduciary duty of loyalty and how you can resign from the company, all member’s rights will be governed by The New Jersey Revised Uniform Limited Liability Company Act (RULLCA), which is a revised version of the act.
This is bad because under the new act, without an operating agreement, members can’t just distribute profits based on percentage of ownership or allow someone to have more votes just because they own more stock or units in the company. The good is that the courts have determined that members without agreements need protection from one another. Does that mean you should run out and hire a lawyer to draft an operating agreement? If cost is a factor, then no. Negotiating a thorough and proper operating agreement will cost you thousands. Plus, you will probably need a shareholder agreement, which will also run you in the thousands.
Is there a better way to operate your company? Yes. If you incorporate in Delaware you need neither a shareholder agreement nor an operating agreement to govern you company and your company is not mandated to follow the rules of The New Jersey Revised Uniform Limited Liability Company Act (RULLCA).
So how does your company govern itself by just filing to incorporate in Delaware? Your company would receive by-laws, which are a simple set of rules and it would also receive articles of incorporation.
Once filed, your corporation can elect both a board of directors and officers. Your company can then authorize itself to sell shares in the company. You would do this by drafting a resolution and having the owners of the corporation vote on it. Then, the board, assuming it’s the owners and perhaps one other person would hopefully ratify and adopt the resolution. You can do as many resolutions as you desire so that your business operates in an orderly manner. For example, you can do a resolution to change the address of the company or how many shares the company is going to sell to shareholders.
Please contact Business Startup Lawyer Andrew S. Bosin at 201-446-9643. Andrew is located in New Jersey outside of New York and charges flat rate fixed legal fees for most projects and engagements.
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