A Brief Introduction About the Delaware Corporation Agreement
The operating agreements that are almost like the “by-laws” of a corporation, the laws that define the rules and regulations of the company’s business and are like a limited partnership agreement are known as Delaware Corporation Agreement. Delaware Corporation Agreement defines the terms that the members of a corporation should adhere to, especially during an admission of a new member, assignment of interest, dissolution of profit, the appointment of voting rights and also the dissolution of the association.
Who Are the Parties Involved in a Delaware Corporation Agreement?
The people that may be involved in the agreement are stockholders, shareholders, directors and the officers of the corporation that are using this agreement.
Purpose of the Delaware Corporation Agreement
The purpose of the agreement is to serve the parties involved to avoid the partnership disputes between the members and also to make sure that all the members are moving towards a common objective.This agreement sets the expectations of the parties to avoid problems and misunderstandings at a later stage.
As per the Delaware Corporation Bylaws ever company sets out rules for conduct, including stockholder meeting procedures, stockholder and/or officer duties, voting regulations, day-to-day guidance and more-all of which help the business run smoothly. On consent of both the parties involved, these bylaws must be included in the agreement.
Contents of a Delaware Corporation Agreement
Any delaware corporate bylaws template mandatorily includes
- Ownership – The agreement includes the members involved in the agreement and their different members’ voting rights, along with the units of the company’s interest owned by the members.
- Voting rights – The interest of the company can be divided between voting and non-voting rights, who will be making company decisions and are passive investors.
- Capital contributions – The consequences of a member of the agreement fails to make the initial capital contribution.
- Management structure – The agreement includes details of whether the members will run the corporation, or the owner, or executives. It can also be concurrent management if the corporation is run by both the parties involved.
- Members withdrawal – The agreement includes the terms in which a member can leave the corporation, and what will happen as a consequence.
How to Draft a Delaware Corporation Agreement?
To draft an agreement, the following things will be considered.
- Firstly, it’s important to mention the name and contact details of the parties involved along with the date of the agreement
- Secondly, the Members’ ownership percentage will be included.
- The duties and powers of LLC managers and members, along with the distribution of profits and losses
- The procedures for transferring interest or in the event of a death and buy-sell rules
- Lastly, the termination date of the agreement will be mentioned
You can also refer to a Delaware corporation bylaws template, or a Delaware corporate bylaws sample to get a detailed view of the important inclusions to help you in the drafting process.
Benefits & Drawbacks of Delaware Corporation Agreement
The main benefit of the agreement is to provide additional provisions like Custom LLC Business Structure and Rules. It helps in asset protection against creditors., it helps in Statutory Limitation on Member Personal Liability and also provides beneficial tax Treatment by the IRS. Also, the agreement is flexible, and changes to the agreement can be made as per the need and requirements of the members involved.
The drawback of the agreement is the cost of registration to do business in the home state or any other state where the business needs to be conducted. Apart from this, the fee for incorporating in Delaware along with the charges of hiring an agent makes the formalities expensive.
What Happens in Case of Violation?
In case of a dispute, the parties involved or when one of the parties involved does not agree to the terms and conditions mentioned on the agreement, then the agreement is violated. The party who does not accept and follow the terms and conditions of the contract needs to pay the penalty to the other party.
To conclude, The Delaware Corporation Agreement helps in solving certain problems in advance to mitigate the risk in the future. The capital contributions, ownership percentages, and fiduciary duties are mentioned in this agreement.
Sample for Delaware Corporation Agreement
A sample of the agreement can be downloaded from below.
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