Business Formation

Formation Errors that Can Destroy Your Business Startup

Almost every client I see has already registered their entity with the Secretary of State prior to meeting with me. While technically the registration process is relatively simple, there are a number of common mistakes most clients make. Some mistakes are made out of sheer ignorance during the filing process and others are the result of failing to finish the process.

As stated in the video: The real reason for registering an entity,  the Secretary of State is primarily concerned with whom to serve papers to (registered agent) in the event of a lawsuit. That said, there are three common mistakes that I see people make when filing articles of incorporation or articles of organization with the Secretary of State.

  1. Failure to include any entity identifier in the name (LLC, Corp., Company, Inc., etc.). By including the entity identifier in the name, it communicates to the general public that the personal assets of investors are insulated in the event of a lawsuit.
  2. For limited liability companies: Here you need to make the distinction between the election of member-managed and manager-managed. By electing member-managed, you are saying that every investor/member is involved in the decision-making process. As decision-makers, every member, therefore, can potentially be held personally accountable in the event of a lawsuit. While a member-managed LLC is desirable for investors that want a direct say in the company’s direction, it comes with the potential for additional exposure to personal liability in some cases.
  3. For corporations: Here many businesses fail to include/file important additional attachments. For example, these attachments could include documents that spell out indemnification/limitation of liability for officers to deter litigation or the use of restricted shares of stock that do not allow for transfers of such stock or only allows transfers under certain conditions.

In addition to mistakes made during the actual registration process, there are many mistakes that are the result of failing to complete the process that takes place after filing the articles with the Secretary of State. Here is a list of things many incorporators forget or don’t bother to do after they file articles with the Secretary of State:

Corporations:

  • Failure to create bylaws which are the internal rules that govern the day-to-day operations of the corporation
  • Failure to create shareholder/buy-sell agreements that describe how a change of ownership may, and may not, occur and what happens where there is a change in ownership
  • Failure of the owners to appoint a board of directors
  • Failure of the board of directors to hold a first meeting to:
    • Set the corporation’s fiscal year
    • Appoint officers of the corporation
    • Adopt the bylaws
    • Authorize and issue shares of stock

Limited Liability Companies:

  • Failure to draft an operating agreement that describes how decisions are made and how profits and losses are allocated, capital contributions made, how/when meetings are held, buy-sell provisions, dispute resolutions, etc.

Both:

  • Failure to move assets from the founders into the company, primarily intellectual property

So, what happens if you fail to complete the process outlined above? Answer: A lot! Here is a short list of the consequences of failing to complete the process.

  • If the assets aren’t transferred from the founders to the company, then any founder who owns an important company asset can hold that asset as extra leverage to get what they want. After all, it’s still their property. You can often transfer the assets using a simple bill of sale trading equity in the business for the asset.
  • If there is no operating agreement, bylaws, shareholder agreement, etc., then everyone is free to argue about it later. This often leads to bad feelings and legal actions that are VERY expensive.
  • Failure to capitalize the company or follow the proper formalities can lead to “piercing the corporate veil,” which means personal liability for the company’s founders/owners. This means that the entire formation process was overall a waste of time.
  • If you fail to issue stock now, you’ll have to issue it later when the tax cost could be very high.

Related Post: Seven Common Business Formation Errors 

Have you followed the proper formation process?


I would like to acknowledge Terry Doherty of the Doherty Law Firm P.C. for his gracious assistance as a reviewer to make sure that the legal issues conveyed in this post were an accurate representation of U.S. corporate law.

This article originally appeared at www.stevebizblog.com

 

Push vs Pull Marketing

PULL Marketing vs. PUSH Marketing – The Shifting Battleground

Even though I make my living as a marketer, I get as bothered as any other consumer by the constant intrusiveness of unwanted promotions. The abundance of unsolicited marketing pitches from TV, radio, Internet ads and other media exasperates me daily. Yet, as hard as we try to get away from it (using tools like DVR, Sirius Radio, cable, and voicemail), persistent marketers continue to find new ways to track us down and share their messages, regardless of our needs or receptivity.

Here are a few examples of irritating push marketing techniques:

  1. Anyone showing up uninvited. Whether at the office or home, this is particularly irritating. The exceptions are neighborhood scouts or sports teams.
  2. YouTube requires you to watch short commercials prior to viewing their content.
  3. Newspapers that contain ads that are wrapped around the editorial content, so you have to go through multiple gyrations to get to the news stories.
  4. Online, floating banner ads are becoming more intrusive and harder to ignore. They follow your cursor until you can find the “close” button.
  5. Unsolicited telephone calls are still an annoyance except they are now from so-called “market researchers” and charities, which are exempt from the privacy requirements. Who came up with that loophole?

Here’s the problem. Push marketing is intrusive and often ineffective because, at any given time, a majority of your audience, whether they are listeners, viewers, or readers, have no interest whatsoever in what you are promoting. They may be interested in the future, but if you come on too strong when they are not receptive, you may turn them off forever.

In some cases, you may have a lead requirement that can only be met with push marketing techniques. If so, by all means use the necessary techniques to meet your lead objectives. But often, you have a choice, and a more effective alternative is to practice pull marketing strategies. Pull marketing centers around the idea that you actively draw clients or customers to seek out your product or services. You do this by discovering where your prospects congregate, making your information available to them in educational and entertaining ways and giving them incentives to come to you when they have a need for what you offer. Instead of having a monologue (as evidenced in push marketing) with your clients or customers, you create a dialogue with pull marketing – a dialogue between you and the prospect.

Transitioning from push to pull marketing strategies is a subtle shift in thinking, but it is also quite powerful. Instead of asking: How many people can I sell to today?, the question becomes: How can I help people solve their problems? In the first scenario, you are a seller, almost an adversary. In the second, you are a helper whose expertise (and wise placement of messages) sells itself. Instead of just relying on ads pushing your value proposition, you produce valuable content (through social media and at your website) that solves problems. In other words, you become a trusted resource and thought leader who circulates a carefully crafted message that attracts the people who need you.

Nevertheless, there will always be an ongoing battle between consumers and push marketers. The latter will continue to try new and clever ways to force the former to pay attention and respond to their promotions. But I submit that a much more effective plan is to uncover a way to attract a larger share of the people who are already interested in what you offer and then convince them to do business with you. It is always easier and more pleasant when you can fulfill an existing need instead of trying to create a need.

In the push model, the marketer is seemingly in charge of everything – the timing, content and frequency of promotions. However, in reality, your consumer is the one in charge, because only he or she can decide whether or not to read or listen to your promotion and whether to respond.

When you are deciding how much of time and financial resources to allocate between push and pull marketing strategies, keep in mind that the battleground has shifted and the prospect is the one who holds the high ground. Rather than fight this reality, just accept who has the real control and find the best ways to help people buy in the way they want to buy, instead of the way you want to sell to them.

 

Note: this article originally appeared at www.GreatB2BMarketing.com