As an entrepreneur, starting a business is an exciting and challenging journey. There are numerous steps involved in establishing and growing a successful business, one of which is drafting a pre-incorporation agreement. This document lays out the foundation of the future corporation and provides important details regarding the relationships between the founding members.
In this article, we`ll explore the importance of a pre-incorporation agreement and provide a sample to help guide you in drafting your own.
What is a pre-incorporation agreement?
A pre-incorporation agreement (PIA) is a contract between the founding members of a corporation that outlines the business`s initial arrangements before it is officially incorporated. This legal document is designed to protect the interests of all parties involved and minimize potential conflicts by defining the responsibilities of the founding members and the ownership distribution.
Why is a pre-incorporation agreement important?
There are several reasons why having a pre-incorporation agreement is important for your business, including:
– Clear understanding of roles and responsibilities: A PIA outlines the specific roles and responsibilities of each founding member, clarifying who will be responsible for which tasks and decisions. This can prevent confusion and misunderstandings that can lead to disputes down the line.
– Ownership distribution: A PIA can also outline how ownership of the company will be distributed among the founding members. This can include the percentage of shares each person will hold, any investment amounts, and how any future sales or acquisitions will impact ownership. This can help to avoid any ownership disputes when the company starts to grow.
– Protection for all parties: A PIA can protect all parties involved in the company by providing clear expectations and guidelines for all aspects of the business. This can help to prevent disputes and provide a legal framework in case of any disagreements.
Sample pre-incorporation agreement
Below is a sample pre-incorporation agreement that can be used as a starting point for drafting your own. It is important to note that this is only a sample, and you should consult with a lawyer to ensure that your agreement complies with all legal requirements and provides the necessary protections.
1. Purpose
The purpose of this pre-incorporation agreement is to establish the framework for the future corporation and provide guidance for the founding members during the initial stages of the business.
2. Founding members
The following individuals hereby agree to be the founding members of the corporation:
– [Name], with a [Percentage]% ownership stake
– [Name], with a [Percentage]% ownership stake
– [Name], with a [Percentage]% ownership stake
3. Capital contributions
Each founding member agrees to make a capital contribution to the corporation in the following amounts:
– [Name]: $[Amount]
– [Name]: $[Amount]
– [Name]: $[Amount]
All contributions must be made before the corporation is officially incorporated.
4. Management
The management of the corporation will be overseen by a board of directors. The founding members will elect the initial board of directors, which will consist of [Number] members.
5. Ownership distribution
Ownership of the corporation will be distributed among the founding members as follows:
– [Name]: [Percentage]% ownership stake
– [Name]: [Percentage]% ownership stake
– [Name]: [Percentage]% ownership stake
6. Non-compete agreement
Each founding member agrees to a non-compete agreement, which prohibits them from engaging in any business that competes with the corporation for a period of [Time period] following their departure from the company.
7. Death or disability
In the event of the death or disability of a founding member, their ownership stake will be transferred to their designated beneficiary.
8. Termination
If any founding member chooses to withdraw from the corporation, they must provide a written notice to the board of directors and other founding members. Upon withdrawal, the departing member`s ownership stake will be distributed to the remaining founding members.
Conclusion
A pre-incorporation agreement is a crucial document that establishes the foundation for your corporation. It outlines the rules and expectations for the founding members, provides a legal framework for the business, and helps to prevent disputes down the road. By using this sample as a starting point, you can create a pre-incorporation agreement that meets your specific needs and protects the interests of all parties involved.