Getting Organized

Incorporating your startup is not enough. You need to get it organized. Organizing a corporation involves several steps, and at a minimum includes:

  • Organizing resolutions of the directors (including adopting by-laws, a financial year-end, appointing an accountant, choosing a bank and issuing shares to shareholders).
  • Subscription letters for shareholders (i.e., each founder needs to tell the corporation how many common shares it should issue).
  • Payments for the subscribed shares (yes… you have to pay for your shares, even if they are issued for a nominal amount).
  • Issuance of share certificates or confirmations of shareholdings (the latter being available under the QBCA only).
  • Organizing resolutions of the shareholders.
  • Acceptances of office by directors.
  • Preparation of corporate registers.

Although this is a good start, your investors are going to expect a few more things when they review your minute book. Take a look at these optional, but highly recommended, steps:

  • Each founder should execute a confidentiality and intellectual property assignment agreement. Why? Because without this, the founders own the intellectual property and not the corporation.
  • Each founder should execute a (reverse) vesting agreement.
  • Planning on issuing options to employees? Might as well adopt a stock option plan while you’re at it.

Lastly, there are shareholders agreements. Not all startups opt for a full-blown shareholders agreement at the time of organization because, admittedly, they can get a bit expensive. The decision to go forward with a shareholders agreement before your first investment should be taken after speaking with your lawyer. Although there are certain clauses which are standard, shareholders agreements tend to be more customized than any other document.

And when it comes time for your first round of investment, the investor may simply require that the existing shareholders agreement be replaced by the investor’s preferred model agreement. Be careful – it doesn’t mean the investor’s model isn’t good for the founders either, but you should get this reviewed by your legal advisor before you sign it so you understand what you’re getting into. (This isn’t like an EULA where you just scroll to the bottom and click “I Accept”… But as a savvy entrepreneur, you would read it in full before clicking anyway, right?)

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