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By Sanjeev Kumar
Founding Attorney

There are a lot of legal documents that can be used in a business, but are not necessarily mandatory. Nonetheless, they can be critical to streamlining operations, protecting business interests, and promoting a successful future for the business as a whole. One such legal document is a pre-incorporation agreement. As one of the most complex business structures, corporations reap many benefits of such a formation such as liability protection for its owner. The corporate structure, however, can be complicated and difficult to manage all of its requirements. A pre-incorporation can help the corporation set off on the right foot before it is even established.

Pre-Incorporation Agreements and Why They are Significant

A pre-incorporation agreement is, as the very name suggests, an agreement established before a corporation is actually incorporated. Such an agreement sets out many of the corporation’s key elements. For instance, it will often detail operations and management structures. It can set forth who will control the corporation prior to the initial corporate meeting. Other helpful terms that can be set forth in the pre-incorporation agreement include the:

  • Shareholder names
  • Names of initial officers and directors
  • Voting rights of founding members
  • Types and quantity of stock to be issued
  • Restrictions on the purchase and transfer of stock
  • State of incorporation
  • Name of corporation
  • Business purpose of the corporation
  • Corporate financing breakdown
  • Shareholder signatures

It is also a good idea to go ahead and draft both a shareholders agreement as well as a confidentiality agreement along with the pre-incorporation agreement. These three agreements together can help prevent unpleasant surprises from popping up once the corporation is established and can help manage everyone’s expectations of themselves in relation to the corporation and the running of the corporation itself.

The prospect of drafting a pre-incorporation agreement may seem like one more thing on an already lengthy to-do list. After all, corporations are difficult to establish. Other business entities involve much simpler arrangements, but the tax advantages, among other benefits, of the corporate structure oftentimes outweigh its inconveniences. A pre-incorporation agreement, however, can end up making life much easier for everyone by putting in the extra work up front.

When combined with other legal tools, a pre-incorporation can help resolve some of the most common issues corporations face before they even arise. Help define the expectations for corporate management and the shareholders. Set forth the corporation’s operations. Make sure everyone is on the same page. You will end up being so thankful that you put the pre-incorporation agreement in place.

Business Law Attorney

The Kumar Law Firm wants to help set your business up for success. We can help you develop the legal tools and agreements your corporation needs to plan for a long and successful future. We’ll put the things in place you need to help avoid all of those issues that can be both distracting and debilitating for businesses. Don’t leave things to chance. Put a business plan in place as soon as possible. Contact us today.

About the Author
Sanjeev Kumar is the founder and principal at the Kumar Law Firm, which provides a wide range of legal services to entrepreneurs and business owners in the area of business & corporate law and intellectual property along with related areas of interest to clients such as business succession planning, wealth preservation through estate planning, and alternate dispute resolution.