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Though the procedure on how to start a company in America has been made simpler over a period of time, one needs to note that there could be laws pertaining to each State which has to be adhered to. The most interesting part of having a startup company formation in the US is that one does not necessarily be an American or for that matter, one does not need to have a valid visa in the US.
However, for those who are not present in the US and do not intend to travel, if those are willing to start up a company in the US, they need to take care of legal procedures and documents. This blog’s intention is to create awareness amongst people who wish to establish a start-up in the US. This blog would furnish a birds-eye view of the list of documentation that may be required towards starting an LLC (Limited Liability Company) in the US.
Everyone will agree that creating a list of things needed to start a business plays an important role in every sect and particularly in business ownership – not only for the business owners but for legal purposes; for the employees too.
Let us discuss the most important documents that are required when you ask the question, “How to start a company?” (1)
There is a list of things needed to start a business, and it is listed below:
1. Partnership Agreement
2. LLC Agreement
3. Bye-Law Document
4. Employment Agreement
5. Non-Disclosure Agreement
6. Founders’ Agreement
7. Shareholders’ Agreement
8. Business Plan Document
This document would furnish the details of partners who join hands to form the company. The Founders Agreement is different from the Partners’ Agreement as the partners could join at a later time too. This document would address the following criteria. The names of the partners involved
• Partners Contribution in terms of equities – this could be in any form as Intellectual Property, land, finance, requisite business equipment, or any other form.
• The Roles and Responsibilities
• The procedure for adding new partners.
• The procedure for dealing with the exit of a partner or the demise of a partner or the removal of the partner.
In a business structure like an LLC in the USA where multiple members are involved, an operating agreement settles important decisions for the company, outlining its functions and financial requirements. The operating agreement is essential to define how shares can be distributed between each member, how profits and losses can be handled, and the rights of every member with regard to the company. (2)
The agreement specifies-
• The members who own the LLC
• The functional and financial decisions binding on the members
• The distribution of profits and losses among the members
• How the key business decisions will be arrived at
• The obligations and rights of the members
• How the LLC would be taxed
This document would contain the rules and regulations required to be followed by all in the company. This set of rules defined would need to be adhered to by the Board of Directors and the employees too. The Bye-Law document could be modified from time to time but needs to be circulated by the Human-Resource Department to all. This document is mandatory in every state of America as this set would echo the business’ structure as per the State’s norms. Furthermore, for the structure of Business Operations, the Bye-law document needs to be exhaustive in nature and must cover the following areas as well.
• Business Structure
• Roles and Responsibilities
• Dispute settlement Procedures
• Minutes of Meeting procedures, and templates.
An employment Agreement is another important and mandatory document that is required.
This document would describe the opportunities, potentials, and responsibilities of the employees. Furthermore, the document would need to describe how the company would mitigate disputes/conflicts amongst people and processes.
This document could be used as a contract between the company and its employees which would be beneficial to all parties. This Agreement would further enhance the bondage between employees and the management on misuse of company information and protect the non-disclosure of business information.
This document would facilitate security and stability for all stakeholders of the company. The other areas that this document would be required to cover, but not limited to, are
• Terms and conditions of employment
• Compensation and other benefits as per the Grading system
• Roles and Responsibilities with KRA (Key Result Areas) and KPI (Key Performance Indicator)
• Non-Disclosure and Protection of Privacy of data and information
• Work hours and guidelines on Leaves
• Notice period to be given on both cases – either the employee wants to leave or has been terminated due to reasons as per various clauses specified,
• Notice period and termination
5. Non-Disclosure Agreement
An NDA is a contractual obligation document that describes between two or more parties to form a common understanding and endorse by signing an agreement not to disclose any confidential information outside of business entities. This way, the sensitive information of all natures like financial, business, ideas, etc could be protected within the agreed parties; thereby making a legal binding between them. This document also needs to be drafted by a legal consultant.
The Shareholder Agreement and the Founders Agreement could be the same in many cases but not necessarily A Founders’ Agreement is another form of contractual obligations document drafted and signed between the co-founders of the company.
This Agreement would describe the roles and responsibilities of the key personnel who join hands to startup the company.
Shareholders are defined as the pillars of the company. These are the people who have invested their money and mind to build the company. A shareholder agreement is a legal document that is made between these pillars which would describe the proportion of shares as per each person’s initial contribution and this agreement would describe the rights/ powers/ provisions. It is highly recommended that this agreement be drafted by a business lawyer.
Before you think, “What are the first steps in creating a business document?”, this is not a mandatory document, this is one of the essential documents if the founders and partners want to venture out for Venture Capitalists for the business expansion and growth. The business plan would need to give clarity not only on the current objective of business focus but also would need to provide the road path for a minimum of 5 years.
If you would like to know more about how to start a company – Contact eSahayak US today.