I have a friend in need. He has a DE or NY corporation with 5 people, each holding 20%. They want to bring in an investor for 10% at $100k. Nothings ever been documented between the original 5 (shockingly) and now he’s come to me bring in this new investor. What’s the most efficient way to paper all of this? What should I propose that he needs done? So many options but less paper will be best. Thanks y’all.

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Sounds like they need to incorporate first.

likesmart

I’m assuming they’ve done that lol. Probably through LegalZoom. 🤣

You should audit the minute book if there is one prior to selling any interests. Pin down status of corporate records. From what I’ve seen, LegalZoom does a decent job of the basics and they should at minimum have drafted bylaws. Did they do stock certificates? If not, opt to make it an uncertificated corp but do a written consent to clean-up the record, confirm shareholders, elect directors and officers, etc. you may also want to check the status of the entity in DE or NY to make sure it’s valid and in good standing.

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Form an LLC, and put in the various rights that you want into operating agreement. It’s about time the governing rules be established and then decide whether they want the $100k to go towards the business or whether the founders all want a taste. If the former have the company issue new equity to the investor and dilute the others. If the latter have the founders each sell a portion of their equity to the investor for the cash to get the breakdown that you want or some combination.

Convince him.

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