US Corporate Law 20 Episodes (5)
There is no such thing in the United States as entrusted shareholding/named shareholders/incognito shareholders! Shareholder certificate waste paper! What is the legal effect of the original copy? Which one is safe, electronic signature or handwritten signature? There is no one-to-one correspondence between a limited liability company/joint stock company in China and an LLC/Corporation in the United States
In the last issue, we talked about the founder's equity distribution in lectures 1-2, and we talked about the founders' equity distribution in lectures 3-4. In this issue, we will talk about the different legal points of entrepreneurship in China and entrepreneurship in the United States.
1. Is equity holding a proxy? Named shareholders, anonymous shareholders?
This concept is basically a question that every Chinese entrepreneur asks when they start a company in the United States. I am still working in a large company, and I am still teaching in a school. Tenure (a tenured position as a university professor), I don’t want to Let others know that I am a shareholder in this start-up company. Do you think there is any way to make my wife hold it on her behalf? My wife will be the named shareholder and I will be the unnamed shareholder.
If you are also worried about this, then I advise you, don't worry. We are in China. You can find out who the shareholders of each company are and how much they account for at the local industry and commerce bureaus. You can even find out, for example, if there are parent and subsidiary companies one layer at a time, and you can also find out the source of the shareholders. What is the proportion of substantive control of the subsidiary of the following branch. But in the United States, there is no such thing, and the business of the United States cannot find these.
Of course, if the company or school you are currently working for has any policy, it is up to you to implement it yourself. What I can only tell you here is that business owners in the United States cannot find shareholder information. In Delaware, only the company's name, date of incorporation, and address are displayed. Businesses in most other states in the United States can only see, in addition to the ones mentioned above, whether the company is in good standing or the tax arrears has been suspended, and then the positions of the company's executive CEO, CFO, and Secretary. That is to say, the only positions that may be found out are the positions of company executives, and shareholders cannot be found in the industrial and commercial information in the United States.
It needs to be clear that we are talking about unlisted companies here, because listed companies in the United States will disclose major shareholders, but start-ups are definitely still unlisted, and shareholder information will not be found.
Speaking of which, there are often some entrepreneurs with American legal knowledge who will ask me, isn't there a concept called proxy in the United States? This proxy and China's equity holding is not a one-to-one concept. Proxy should be exactly a kind of temporary voting proxy, that is to say, I don’t have time to go to the general meeting of shareholders. I will find someone else to vote for me, and this is all short-lived. The appointment of a proxy in California cannot exceed 11. months.
2. Where can I get my shareholder certificate? Why not change the seal on the certificate?
Some people find this kind of online agency company to register, and give each shareholder a piece of cardboard that is printed horizontally. Generally, this paper is light yellow with an eagle drawn on it, surrounded by blue and green. Framed by flowers. Later, when I went to Zhengjian Law Firm to find the documents of the law firm, they said why there is no such shareholder certificate, and some people will ask that the company seal given to them by the registered agent should be stamped on the shareholder certificate.
I can tell you that in the United States, this shareholder certificate is just a piece of waste paper. As for the official seal, you can buy it on Amazon for $89 a piece. The charge of the official seal can be engraved as many times as you want.
So since I mentioned earlier that the industry and commerce can't find my information, and the shareholder certificate is useless, how can I prove that I am a shareholder of the company?
As far as one document is concerned, the shareholder contract, to be precise, is the shareholder contract signed by both parties.
The first legal concept to be clarified is that the only condition for legal documents to take effect in the United States is the final judgment condition is the signature, there is no such thing as a chapter. The second thing to be clear is that the only proof of shareholder power and the final proof is your shareholder contract. We talked about the restricted stock in the last issue. Generally, the name of this contract is restricted stock purchase agreement, which has a 4-year return. For options, if there is no four-year repurchase option, it is a common stock purchase agreement.
After talking about this, someone will ask again, so who should I sign this to? There is no need to pay, there is no place to pay, and no one will collect it if you go to pay. Just take it yourself. One for the company and one for the shareholders themselves.
3. What should I do if the contract the company gave me is not the original? Are electronic signatures legally binding?
After talking about the shareholder contract, some people will start to look through the pile of documents that they have joined the company and ask them after they have taken them out. I do have such a contract here, but this is a copy, not the original, so do I have to ask the company for an original.
Don't worry, your copy is the original under US law. We know that in China, the original and the copy are clearly separated, and the original only recognizes the wet signature, so if you invest in 10 investors in the A round, how do you do it in China, and print out 10 full sets of investment documents , the secretary ran through each investor's office in Beijing, Shanghai, Shenzhen, Chengdu, Suzhou, Nanjing, Hangzhou, etc. with dozens of pounds of documents. I got back 20 originals. Domestic express is so convenient, why not send express? What if the first 9 investors are signed and the tenth is lost, right?
In the United States, photocopies and scanned copies are regarded as originals, and it is sufficient to sign the remaining copies.
And this and me are from DocuSign at the time, is this okay? Do I need to get a pen and sign again? Don't worry about this. In the United States, electronic signatures have the same effect as handwritten signatures.
4. Does a limited liability company in China = an LLC in the United States?
In China's company law, there are two types of companies, one is a limited liability company and the other is a joint stock limited company. Many people, especially those who have entrepreneurial experience in China and have opened companies in China, often come to the United States and say that I want to register an LLC. Everyone takes it for granted that limited liability company is not a limited liability company translated.
But we need to tell you that China's limited liability companies and joint stock companies are the corresponding American corporations, and China does not have a company in the form of an American LLC.
The limited liability company and joint stock limited company under Chinese law should more accurately correspond to the private company and public company in the United States. Of course, this correspondence is not particularly accurate. So strictly speaking, there is no complete one-to-one correspondence.
The main advantage of an LLC in the United States is that there is no corporate tax level in the tax declaration, and it pays personal income tax directly. Moreover, in practice, the LLC situation is mainly for companies with relatively large cash flow and monthly revenue, such as restaurants, moving companies, consulting companies, housekeeping services, and extracurricular training courses. The American corporation is a suitable form for our technology entrepreneurs. In the beginning, we burned money for research and development, and when we acquired it, we sold the company and made a big profit.
Summarize
There is no entrusted shareholding in the United States, and the industrial and commercial sector in the United States does not display shareholder information. The only proof of shareholder qualification is the shareholder contract signed by you and the company, which does not need to be sealed. As long as there is a signature, electronic signature, or handwritten signature, it is equivalent, and the original, photocopy, and scanned copy are equivalent. In addition, there is no one-to-one correspondence between limited liability companies in China and LLCs in the United States. Technology startups in the United States must all register corporations, not LLCs.
So today we mentioned the issue of wives holding shares for their husbands. In addition, a model that we often see in domestic entrepreneurship is husband and wife entrepreneurship, but this form is rarely found in American entrepreneurship. In the next issue, we will Let's talk about the problem of husband and wife business.
See you in the next issue.
