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Preferred Stock

Glossary Term

Preferred Stock (like Common Stock) is a security that represents ownership in a corporation. In addition to the ownership interest, Preferred Stock has rights that Common Stock does not.

Option pool

Glossary Term

An option pool is a number of shares of stock reserved for issuance to service providers of a company pursuant to options and other equity incentives.

Fiduciary Duties

Glossary Term

A person owes another fiduciary duties when that person has control over a financial interest of the other. For example, corporate directors owe fiduciary duties to that corporation’s stockholders.

Duty of Care

Glossary Term

The duty of care is one of the fiduciary duties and it is violated when an action is taken or not taken on the basis of inadequate information or without following a reasonable process.

Exclusivity

Glossary Term

In a term sheet, there is commonly a requirement for temporary exclusivity that requires one or both parties to negotiate exclusively with the other for a limited time or under certain conditions so that the investment of resources and time into due diligence and negotiations intended to finalize the agreement does not get interrupted or wasted because of an interloping offer.

Executive Session

Glossary Term

A Board of Directors can hold a meeting or a portion of the meeting with only non-employee directors, called an executive session.

Certificate of Incorporation

Glossary Term

The Certificate of Incorporation is a legal document that establishes a corporation as a legal entity and contains basic rules for governance of the corporation.

Common Stock

Glossary Term

Units of equity ownership in a corporation entitling their holder to a share of the corporation’s success through dividends and/or capital appreciation.

Board of Directors

Glossary Term

The Board of Directors of a company are the people elected by the stockholders to be responsible for the management of the company.

Bylaws

Glossary Term

Formal rules adopted by a corporation that establish how it will be governed.

Corporate Veil

Glossary Term

To “pierce the corporate veil” is to establish that there’s no legal separation between a company and the individuals involved. If a court “pierces the corporate veil”, stockholders may be held personally liable for the corporation’s obligations.

Audit Committee

Glossary Term

An audit committee is a committee of a company’s board of directors that is delegated the responsibility to oversee financial reporting and disclosure.

Once you have decided to seek a listing of your company’s shares by way of an initial public offering, you will want to ensure the process goes as quickly and as smoothly as possible. This article sets out some steps you can take at any early stage to help prepare your company for an IPO.
If a corporation’s board of directors decides that the business needs to be wound down, there are a number of legal paths to consider. Determining the best approach is fact-dependent, and the corporation and its board should get legal advice before making a decision.
Confusion about your ownership structure, or a poorly planned structure, can create unnecessary administrative hassle and legal expense, and in certain situations can ward off investors. Here are some matters to consider as you establish the ownership structure (capitalization) of your company.