Corporations: Formation

10/8/2025 pdw

Best Bike Co. is surpassing all expectations. It is time to expand. But expansion takes money that you do not have. Some friends would contribute in exchange for a share of the profits, but after talking to their lawyer, they have two concerns. First, they are worried about liability. They know that if they join your partnership they will be personally liable for any losses, even if they don't plan to exercise any control. Second, they know that partnership interests can be difficult to transfer; they would like to be able to sell their interests in case they need cash without making a big deal of it.

In the next few chapters we'll introduce corporations. Corporations address both of these concerns. They limit the liability of investors and make it easy to transfer equity interests. This chapter will explain (1) what a corporation is; (2) how corporations are governed; (3) how to form a corporation; (3) incorporator liability; and (4) the ins and outs of the organizational documents (a) articles of incorporation and (b) bylaws.

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