Many times, I run across a point of law or a legal issue that is short. In other words, too short for a blog post. So I am collecting them here.
Buy/Sell Agreements
There are two types of buy/sell agreements for businesses. One is an asset-only sale, where the seller keeps the entity but sells what it owns. The other is an entity sale, where the buyer receives all the stock (or membership interest if an LLC) in the business.
Converting a California LLC into a Texas LLC
The good news is that both California and Texas allow conversion. Conversions require that the laws of both states allow it.
California requires filing of a Certificate of Conversion that names a California registered agent.
Texas requires a Plan of Conversion, a Certificate of Conversion and a Certificate of Formation for the LLC. The converted Texas entity will need a new Operating Agreement.
Converting a Texas LLC to a Delaware Corporation
To convert a Texas LLC to a Delaware corporation, you must file a Certificate of Conversion and a Certificate of Formation with Delaware. You will also need bylaws and the necessary resolutions to issue stock and commence business, even if you are a one-person corporation.
You will also need a new Employer Identification Number from the IRS because of the conversion.
After that’s done, you would terminate the Texas LLC.
Deed of Accession
So why are deeds listed on this business and corporate law website? Aren’t deeds what you use to convey real estate?
Well, yes, they are. But in corporate law we have a special kind of “deed” that has to do with shareholders’ agreements.
A shareholders’ agreement is (duh!) an agreement among the shareholders of a corporation. But what happens when another shareholder buys some stock, or the corporation issues some to the new shareholder?
We don’t want to pass around a new signature page for all the stockholders to sign. So what we do is give the company the power in the shareholders’ agreement to sign on behalf of the existing shareholders. What the company and the new shareholder sign is called a deed of accession. It binds the new shareholder to the shareholders’ agreement.
Delaware Corporations – Officers and Directors
A Delaware corporation must have only one officer, the President, but it is common to have both a President and a Secretary. One person can hold all offices.
Delaware corporations with only one shareholder must have at least one director. If there are two shareholders, there must be at least two directors. If there are three or more shareholders, there must be at least three directors.
Howey Test
The Howey test determines whether an investment is a security. “The test is whether the scheme involves an investment of money in a common enterprise with profits to come solely from the efforts of others.” SEC v. W.J. Howey Co., 328 U.S. 293, 301 (1946).
Illinois Corporate Excise Tax
If an Illinois corporation issues additional stock, the state imposes a $0.0015% excise tax on amount paid for the stock.
Illinois Report of Changes in Issued Shares and Paid-In Capital
If your corporation makes a change in the number of shares of stock it can issue, or in the paid-in capital, you must file a Form BCA 14.30 showing the change since the last reporting period.
Kentucky LLC Filings
Kentucky now allows online filing of LLCs using an interactive form.
LLC Members and Managers
The owners of corporations are stockholders. LLCs use a different terminology. Owners are called “members.” They hold membership interests, not stock.
If they want, the members of an LLC can run it. These LLCs are “member-managed.”
If they prefer, the members of an LLC can designate a person or entity, or more than one, to run the LLC. These LLCs are “manager-managed.”
Members can be managers, and vice versa. But a manager is not required to be a member.
Name Change – Delaware Corporation
To change the name of your corporation in Delaware, you must first pass a resolution by the Board of Directors, and then one by the Shareholders, to change the corporate name. Then, you would file a Certificate of Amendment in Delaware.
Par Value
Par value is the minimum price at which investors may buy stock in a company when the company originally issues the stock. Market value is a different story.
Stock Certificates
Most corporations make it optional to issue stock certificates. Even if a corporation issued stock certificates, the certificates don’t prove ownership of the stock.Each corporation keeps a stock ledger with is the definitive list of shareholders.