Incorporate a Stock Corporation in Delaware

2007-03-08 10:33:40

( Business )



You can incorporate in many states with different advantages. You can incorporate in nevada or incorporate in delaware.

What aspects should you consider when you incorporate Delaware with a stock corporation?

Issues of who are:
- the members of the corporation
- management
- stockholders
- indemnification and exculpation
- mergers
- dissolution
- domestication / transfer of domicile.

Management
When you incorporate with a stock corporation in Delaware your business is managed by a board of directors who are expected to be completely trustworthy in terms of managing the corporation in the best interests of the stockholders. They are expected to act in a manner which does not take their own gain into account, to be informed, act in good faith in such a way that their actions will benefit the corporation and stockholders. So in the case of eventual disaccord they won’t be held accountable by the Delaware courts if they adhered to these principles.

Unless otherwise stated in the certificate of incorporation, a majority vote decides board action.

A quorum (ie a majority of the board) should be present at the meeting. Decisions may also be made in writing (unless otherwise stated as before), but in this case should be unanimous.

If you incorporate as a stock corporation, the board of directors can be made up of any number of members according to the certificate and the bylaws.

Provision can be made for stockholders of a certain class of stock to elect a certain number of directors – especially when venture capitalists make investments.

It may also be required that directors have specific qualifications.

The whole board is elected every year unless they are divided into classes – in which case they can be elected for a longer period than a year. However the board can’t be elected longer than a few years.

Continuity of the board is required in the case of a classified board and members may only be discussed for cause.

The majority of a classified board can’t be removed at a single meeting of stockholders.

The board selects the corporation officers and can also remove them. The authority of the officers is determined by bylaws and decisions made by the directors. Officers are in charge of the operational management.

Stockholders
Unless stated otherwise, stockholders aren’t responsible for managing the corporation. However, they elect directors every year and can also agree or disagree in the case of important corporate events – as in the case when:
- the certification of incorporation is amended
- all or nearly all of the assets are sold
- dissolution
- mergers.

In these matters a majority vote is required, unless a higher percentage is stated in the certificate.

Dissolution can be made when stockholders approve unanimously. However, fundamental changes like:
- certificate amendments
- sale of all or nearly all assets
- dissolution
- mergers
can only be verified by the majority vote of stockholders based on preceding action by the board.

Stockholders have the right to
- repeal, amend or adopt bylaws
- inspect books and records concerning their interest.

They exercise authority by
- meeting and adopting a resolution
- written consent (not necessarily unanimous) unless otherwise stated.


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