What's Next After Incorporation: Corporate Governance

I’ve discussed some of the legal and operational aspects of how a Delaware C corporation should get up and running after incorporation. But, I haven’t described the process of documenting company activity internally, and creating certain processes, for transparency, accountability, and to comply with Delaware law. This kind of framework of documentation and process is called corporate governance. Here, I discuss the basics of corporate governance for Delaware C corporations so you can start thinking about the nuts and bolts of running an entity compliantly. 

Adopt Bylaws and Appoint Board of Directors

Usually, an individual known as the incorporator files the company's certificate of incorporation, and their next task is to adopt the company bylaws, set the number of directors, and appoint a board of directors through a Sole Incorporator Consent. Bylaws are a set of rules and procedures that govern management of the company’s business and how the company manages its corporate matters. Most of these processes are controlled by Delaware law, for a Delaware corporation. 

You need to have at least 1 director on the board for a Delaware company, and usually the initial board of a startup are only the founders, which keeps the running of the company lean and efficient. Once bylaws are adopted and directors are appointed, the incorporator’s role is complete, as that consent has provided the Directors with the authority needed to take subsequent corporate actions.

Initial Board Consent

Companies act through their board of directors, often via written board consents that are recorded and placed in a document repository. The initial board consent usually contains the following items: 

• Ratify the certificate of incorporation
• Elect officers to run the day-to-day operations of the company
• Set the fiscal year
• Authorize officers to open a bank account for the company
• Authorize stock issuance to founders
• Adopt template agreements I mentioned in my last post: employment agreements with PIIAA, restricted stock purchase agreement, and stock purchase or stock option plan, if applicable. 

Limiting Personal Liability

I mentioned in an earlier post that the company will need to have documentation and processes in place as part of limiting the personal liability of the stockholders of the company. One aspect of this is obtaining and recording stockholder and board authorization for key corporation actions, in the form of meeting minutes. Here’s a non-exhaustive shortlist of actions that require board approval: 

• Amend the Certificate of Incorporation
• Enter into corporate transactions such as selling the company or a merger
• Hiring officers, such as a COO
• Issuing shares on stock options
• Enter into “material agreements”, contracts that have a major impact on the business 
• Set or modify compensation for officers
• Adopt an annual budget
• Borrow money

If you’re unsure if a certain company action requires board approval, it’s best to consult a lawyer. It’s always better to get board approval before a decision is made, rather than later on, which may require additional notices.

Now that you’ve got the basics of corporate governance completed, it’s back to building a great product that customers love.

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