Checklist for Forming Your New Corporation or LLC: Lessons from Club de Cuervos
Whether you and your friend(s) are starting a new business or whether you are finally taking that momentous step and converting from partnership to corporation or LLC, here is a checklist of issues to decide in advance. Even if you are a sole proprietorship, this is still a good list for when you expand your business and bring on trusted colleagues.
Who is in Charge of a New Corporation or LLC?
When you form your new San Diego corporation or LLC, you need to decide who is in charge. There is a great television show you can see on Netflix called Club de Cuervos (Club of Crows) about the Iglesia family and their ownership of a fictional Mexican soccer club. The father, Salvador Iglesias, built the team, but now the children, Chava and his half-sister Isabel, are in charge. Chava and Isabel argue about everything down to who gets to use Papa’s office and his desk and chair and on and on. First, Chava was president, then Isabel was president, then they decided to be co-presidents of the team with all decisions requiring them both to agree. Predictably, the lack of leadership and constant bickering causes disaster after disaster.
It is good recipe for a humorous television show, but a bad idea in reality. Chava and Isabel needed a good business lawyer to write up a set of bylaws or a good operating agreement that fully lists the roles and responsibilities. Even when siblings cannot agree, at minimum, a good business lawyer can be creative and come up with tie-breaking mechanisms and ways to resolve conflict. For example, give Uncle Luis a tie-breaking vote or give someone else in the family the “final say.”
What are the Duties of Officers and Directors?
Sometimes, the easiest way to avoid conflicts among strong personalities is to define jobs generically (and then agree about who will be given the job). Typically, the main upper level employees of a corporation are the President/CEO and Treasurer/Chief Financial Officer (“CFO”). The board of directors also hires a Secretary. Depending on the size of the business, there can be various vice presidents and an assistant CFO. Create “job descriptions” for each position. Such descriptions will help everyone figure out who is the best person for the job. With respect to Club de Cuervos, Isabel is very good with numbers and contracts, so she is ideal as the CFO. Of course, any CFO is typically “behind the scenes” and Isabel wants the limelight, or at least wants as much limelight as Chava gets. Sometimes, the solution is “neither of you!”
Define Goals: Short and Long-Term
Any good business defines both short and long-term goals. With respect to short-term goals, what, for example, is the market niche that you are planning to exploit? Who are your customers? How are you providing the same excellent product but at a lesser price than your competitors? Longer-range goals include larger markets, diversified manufacturing sources, and more.
Keep Your Financing Sources Happy
Every business needs capital to get going and capital or financing for cash flow and ongoing operations. As a general rule, keep your financing sources happy. Each investor and/or lender is unique, so what is needed to keep them happy depends on your circumstances. Maybe happy is making sure payments are always early. Whatever it is, make sure you do it.
Chava and Isabel failed to follow this rule with predictable results. Chava and Isabel angered the rest of the Iglesias family (who own the soap and perfume factory and the potash mine). The family said, “No more money for the team.” Then Chava and Isabel angered the state Governor. He said, “No more government subsidies for the team.” And on and on. If you need help with the money, keep your money-sources happy.
Keep Your Customers Happy
This sounds obvious, but the word “customers” should be broadly defined. Aside from those who actually buy your product or service, think about keeping other customers happy. You should keep your commercial landlord and the other shop owners happy. If sweeping and keeping the trash picked up is important, then do that. With respect to Club de Cuervos, aside from the fans who buy tickets to the games, other customers are the league, television networks, and advertisers. Chava and Isabel have not done a good job keeping any of them happy.
Keep Your Key Employees Happy
In general, if you have key employees, such as a key salesperson or just someone who makes the business run smoothly, keep those employees happy. At the same time, you cannot let the key employee take over. A good employment contract help strikes the right balance.
Call San Diego Corporate Law Today
Obviously, Club de Cuervos is fictional television. No business survives with that much drama — drama is for television. The show provides an amusing example of many pitfalls to avoid if you are starting up a new business or expanding your family business. If you need legal advice relating to setting up a San Diego corporation, need help with bylaws or a custom-drafted operating agreement for your LLC, or if you need help with employment contracts, call experienced business attorney Michael Leonard, Esq., of San Diego Corporate Law. Call Mr. Leonard at (858) 483-9200 or use the form on this page.