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We haven't sorted out the equity between our cofounders yet so I was wondering in major corporation decisions who makes the final decision? If equity wasn't given does it mean every person is an equal partner?

The company is incorporated but we haven't dished out the equity. We're a team of 5 and the business person is making questionable decisions. I'm more of a tech person and our business co-founder is handling the business side such as incorporation.

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When a company is incorporated, shares are issued to the shareholders in accordance with the application i.e. a company always has shareholders.

However, shareholders do not make the decisions about the management of the company: the directors do. The directors are appointed by the shareholders (and may include some or all of the shareholders) and are answerable to the shareholders and must act in the best interests of the company as a whole but they do not follow the instructions of the shareholders, they act on their own best judgement.

If you have not yet incorporated your business then you are operating a common law partnership. Profits and losses are distributed in accordance with the provisions of the partnership deed or, if there isn't one, equally. Each partner is jointly and severally liable for the acts and omissions of every other partner: that means that if your partner makes a "questionable decision" that costs the business say $1 million, then any or all of you can be sued and the person(s) who has $1 million is the person(s) who will pay.

  • It's probably worth pointing out in your second paragraph that this is nothing stopping the shareholders deciding to appoint themselves as directors. In fact, in small companies this is very common. (However it is still worthwhile distinguishing between the two roles.) – Martin Bonner supports Monica Jun 19 '17 at 13:40
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In Colorado, where I practice law, the person who signs the incorporation papers, generally speaking electronically, who is called "the incorporator" has full discretion to do anything consistent with the articles of incorporation until directors are appointed (at which point the powers of the incorporator are spent), and there would usually be a brief period between incorporation and the appointment of directors, followed by another brief period between the appointment of directors and the appointment of officers and issuance of shares. Your mileage may vary as state laws on these nuts and bolts details differ somewhat. The relevant statue in Colorado reads as follows:

Colorado Revised Statutes § 7-102-105. Organization of corporation

(1) After incorporation:

(a) If initial directors are not elected in the articles of incorporation, the incorporators may hold a meeting, at the call of a majority of the incorporators, to adopt initial bylaws, if desired, and to elect a board of directors; and

(b) The initial directors may hold a meeting, at the call of a majority of the directors, to adopt bylaws, if desired, to appoint officers, and to carry on any other business.

(2) Action required or permitted by articles 101 to 117 of this title to be taken by incorporators at an organizational meeting may be taken without a meeting if the action is taken in the manner provided in section 7-108-202 for action by directors without a meeting.

(3) An organizational meeting may be held in or out of this state.

Once a corporation has directors, those directors can appoint officers to act on behalf of the company, and can issue shares on such terms as they see fit. A corporation can generally only take binding legal action through its officers, so until directors have been appointed and in turn appointed officers of the corporation, it basically can't do anything.

But, this is generally not a great concern because until there are shareholders, there is generally no property in the corporation because no one has made any contributions to capital.

In the case of a non-profit, by the way, in Colorado at least, the default in a case of defective incorporation is not a general partnership, but an unincorporated non-profit association.

Importantly, non-profit corporations rarely have shareholders and for profit corporations can exist without shareholders so long as they have directors and officers, even though they rarely do. Tax law, for example, does not require a corporation taxed as a C corporation rather than as an S corporation, to have shareholders.

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