First cut on the three documents

had a chat with Julie. We have much flexibility in how we write the Articles and the Bylaws, but since we're a corporation (S Corp), we need to have these documents in place and do need to designate ourselves and Directors and Pres and VP (rotating annually). Other offices can be held by us or others. Bottom line: in order to maintain our S Corp status, we need to look and behave like a corporation.

As for shares, since we might anticipate push-back with the recommended two-thirds ownership of shares by you and me, I strongly recommend that you and I each own 26% of the issued shares with E and D each getting the option to purchase 24%. The concept of 1 share per shareholder, while elegant, I believe will defeat the purpose of our valuation of the shares and using them as a vehicle for raising capital (which of course is the reason you sell them to new partners). Also, it doesn't make sense to allow absolute equality among future equity partners (including E and D). You and I have the right to stake out "more equal than the others" status for ourselves. No one would question that.

We should address the valuation of each individual share for the offer to E, which I recommend should be finalized and extended sooner rather than later.

Our gross revenue last year was $762,000, roughly. That's one place to start, though not required. We could value the firm at that or some multiple of that. If we're going to authorize 100 voting shares initially, since we own the company, we already own whatever number of shares we want to award ourselves. So we instantly own 26 shares apiece. We can offer E the purchase of 24 shares, which he then agrees to buy at whatever value we designate. We could value the shares (which each equate to 1% ownership) at $7620/share, if we were going to use gross revenue X 1. But that comes out to $182,880. Yikes! So we have to figure out a more rational means of determining share value for the new equity partners. And according to our attorneys, any method is fine. Does not have to be tied to revenue in any way for initial sale. But I think two principals are important: It shouldn't be a gift and it shouldn't be an insignificant, nominal amount. It's a way to raise capital to, as but one example, retire debt. Remember, bringing E in (and without D) cost us a helluva lot of money, especially because it included KN. I can actually work up those numbers for you if you'd like. E could have worked from home until this past Oct, perhaps.

Below are the three docs we have to finish. Also included are the notes from our meeting in Feb for your reference. We still need to incorporate the "Directors only" decisions into the By Laws.

Neal A. Puckett, Esq
LtCol, USMC (Ret)
Puckett & Faraj, PC
1800 Diagonal Rd, Suite 210
Alexandria, VA 22314
703.706.9566
www.puckettfaraj.com
www.twitter.com/puckettfaraj

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