March 2014

A Health Company Structure

Your company likely plays an important role in maintaining your family's lifestyle. Even so, basic questions like "Who owns the company?" and "Who has legal authority to act on its behalf?" do not have clear answers in too many cases that we see.

Health of Your Corporate Structure

Ownership issues may arise during the corporation's lifetime or at the very beginning. For example, when that shareholder left, did you cancel her shares? Have the officers signed all the certificates? Did the Board approve the issuance in the first place? If the answer to any of these questions is "No," then an investor in your company, for example, will have concerns.

The problem is not always quite as fundamental as ownership. Another area where we often see potential issues relates to the authority of the officers to act on behalf of the company. The officers (President, Vice-President, etc.) should be appointed by the Board and there should be written evidence of this (dated within approximately the last year.)

LLCs and traditional corporations have some important differences, but ownership, authority and other fundamental questions can arise in either structure. Moreover, we continue to see these impact even some of our best and most proactive clients. Commonly, it comes to light when companies are being sold or a lender makes inquiries. Just as troubling is when they are discovered because a shareholder is leaving. We deal with all of these, and regularly.

As with about everything in life, you'll find these problems are easier to correct and less costly before there is an event that requires it. And essentially every going concern needs to deal with ownership and authority issues sooner or later, if for no other reason than because owners die and transitions become mandatory.