Forming a Company Is Just the First Step To Owning It

By Michael Bell Monday, February 20, 2012

So you and a friend one day start collaborating on different business ideas. You both shake hands and come to the conclusion that you have a great business idea and you want to go into business and own it 50 – 50. You believe it will all fall into place as you expect regarding who is going to do what, who’s who in the company, and what each partner is going to contribute. You dream up a business plan and form a Delaware LLC or Corporation through Harvard Business Services taking advantage of Delaware’s preeminent corporate law.

Well, that all sounds great, however as everyone knows not every collaboration works out as expected. In this article we're going to explain the importance of why  every company should have specific documents on file internally within the company at all times with regards to this specific possibility.

Many of our clients feel when the company is formed that everything is complete and they can go on their way running the business. They neglect to sign an LLC Operating Agreement or draft corporate minutes and bylaws. However, every now and then there is a snag where one person feels differently than the other business partner and it leads to a break up in the business. The question is, who takes the business with them and who leaves without it? Sometimes BOTH want to continue owning the business, only without the other.

That usually leads to both parties calling our office separately wanting to know who actually owns the business. Sometimes, one party will call and try to change the address to their own, or try to change the name of the company, or even try to dissolve the company without the other person knowing about it.

Now there is a problem. One partner says one thing and the other partner says another, in essence it is one of those “he said, she said” situations. At Harvard Business Services we have a specific policy in place when a case like this arises.

Delaware law provides that every Delaware Company, regardless of the type of company, must have one “Contact Person”. That person must be a real person, and cannot be another company. As a Delaware Professional Registered Agent we are required by law to maintain a contact person’s name and address for each one of our 30,000 clients. When you form a company through HBS, you tell us who your Contact Person will be. We place this person’s name in our files and on our computer record.

Here at Harvard Business our policy is that we  only speak to the official “contact person” of record about the company, and we accept instructions from the “Contact Person” only. It doesn’t matter who called us first, or whose credit card paid for it, or who says they own the company. The contact person must verify certain information on file for us to speak with them on behalf of the company. Many clients feel because they provided their name as the Member or Director at the time of filing that they own the company. This is not always the case and this is where an Operating Agreement for an LLC or Minutes and Bylaws for a Corporation come in very handy, to say the least. We find that some of our clients never get around to these essential matters.

That’s why we recommend our STANDARD SERVICE which includes a deluxe company binder with all the formation documents you need to establish who is who and what each party contributes and what ownership each party gets for their contribution. Even though it costs more than the bare-bones service, it can be well worth it in the end.

If you formed your company with our mini-service and haven’t executed the documents you should, you can order a corporate kit now, and get it done, before a situation arises. Call us now.

For more information on why you should obtain a Deluxe Kit read How Thin is your Veil?, written by Harvard’s Paul Sponaugle.

*Disclaimer*: Harvard Business Services, Inc. is neither a law firm nor an accounting firm and, even in cases where the author is an attorney, or a tax professional, nothing in this article constitutes legal or tax advice. This article provides general commentary on, and analysis of, the subject addressed. We strongly advise that you consult an attorney or tax professional to receive legal or tax guidance tailored to your specific circumstances. Any action taken or not taken based on this article is at your own risk. If an article cites or provides a link to third-party sources or websites, Harvard Business Services, Inc. is not responsible for and makes no representations regarding such source’s content or accuracy. Opinions expressed in this article do not necessarily reflect those of Harvard Business Services, Inc.

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