Neal and Faraj, I just wanted to touch base and see if you have had a chance to review the proposed corporate structure detailed below and the documents (as well as the various options highlighted in the documents). Julie Julie Parks Parks & Schaffer, PLLC 703-229-0191 www.ParksandSchaffer.com Office: 303 North Washington Street Alexandria, VA 22314 Mailing: PO Box 320242 Alexandria, VA 22320 This message (including any attachments) contains confidential information intended for a specific individual and purpose, and is protected by law. If you are not the intended recipient, you should delete this message and are hereby notified that any disclosure, copying, or distribution of this message, or the taking of action based upon it, is strictly prohibited. From: Julie Parks [mailto:Julie@ParksandSchaffer.com] Dear Neal and Haytham, I confirmed with John Renner that Puckett & Faraj, PC is currently an S Corporation and there is no rationale for changing this selection. Jim and I discussed the corporation structure and the language of the documents and developed the approach outlined in the next several paragraphs. It seems clear there is a struggle between keeping control of the company and issuing stock. In some instances it will be important to maintain more than 51% control of the company. In fact, we suggest retaining at least 2/3 of the issued and outstanding stock. By statute many major decisions of the corporation require 2/3 vote: amending the articles (13.1-707); merging the corporation (13.1-718); selling substantially all the assets (13.1-724); and dissolving the corporation voluntarily (13.1-742). If collectively both of you possess 2/3 of the stock then together you will be able to determine the direction of the corporation. We had previously discussed having voting and non-voting shares of stock; however, another cleaner option is to have only voting shareholders. As described in the above paragraph, many of the decisions of the corporation must be made by 2/3 vote. Each of you could retain 1/3 of the shares and the remaining 1/3 shares would be divided among the other shareholders. This would ensure that both of you could jointly control the direction of the company but the other shareholders would still have their opinions heard (via a vote). Allowing all shareholders to have one vote keeps the S selection clear (no tendency towards two classes of stock, which is not allowed for a S corporation) and follows a more traditional and straight forward shareholder agreement. However, one of the principal partners (either Neal or Haytham) could be overruled if both partners are not in agreement on a certain decision. This bears repeating…one of you could be in the minority. For example, Neal (1/3 shareholder) wants to amend the articles while Haytham (1/3 shareholder) and the other 1/3 shareholders disagree, thus Neal is out of luck. But, since both of you already manage the company and are comfortable making decisions together, this may not be much of an issue. The Bylaws are currently drafted to make both Neal and Haytham permanent members of the Board of Directors. The number of directors could be increased by 2/3 vote of shareholders. The Officers of the Corporation shall be chosen by the Board. I envision Neal and Haytham rotating the offices of President and VP, in addition to being on the Board. But other officers, such as Treasurer or Secretary, could be held by other shareholders, elected annually. This allows participation in the corporation by other individuals besides just Neal and Haytham. Finally, the Board can designate committees to be staffed by at least one Director and as many shareholders as necessary (for example, committees on employee retention, business development, marketing, mergers and acquisitions). If so desired, some of the committees could be permanent and specifically listed in the Bylaws while other committees could be more fluid and initiated for a finite period depending on the needs of the corporation. Attached are drafts of the Articles of Incorporation, Shareholders’ Agreement, and Bylaws based on the structure described. I made some decisions based on what I thought would be best for Puckett & Faraj, PC, but I have included comments (highlighted in yellow) with other options that could be selected. In addition, I have highlighted all the areas that require a vote of the holders of 2/3 stock. One thing that is not addressed in the documents is the process for an individual to become a shareholder. This is something that still needs to be fleshed out and added to either the shareholders’ agreement, or perhaps a separate document. Please let me know if you have any questions or thoughts. Thanks, Julie Julie Parks Parks & Schaffer, PLLC 703-229-0191 Office: 303 North Washington Street Alexandria, VA 22314 Mailing: PO Box 320242 Alexandria, VA 22320 This message (including any attachments) contains confidential information intended for a specific individual and purpose, and is protected by law. If you are not the intended recipient, you should delete this message and are hereby notified that any disclosure, copying, or distribution of this message, or the taking of action based upon it, is strictly prohibited. |