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Next steps after setting up a new company

Law Offices of Yu & Associates

After you've registered your company, applied for an employer identification number (EIN) from the IRS and opened a company bank account, you're officially ready to start doing business. However, you should also pay attention to the following points during your company's day-to-day operation in order to assure its stability and continued growth:

1) Revise the company's charter when needed

When you register your company, you need to submit its Articles of Incorporation. The Articles of Incorporation include the company's name, business structure, stock structure, number of shares issued and their value, the company's address, the company founder's name(s) and address(es), a description of the first meeting of the Board of Directors, including location and the names of attendees, and the company's purpose. You can fully prepare and perfect your Articles of Incorporation before registering with your state, but you also submit a draft of the Articles with your registration, and then submit a revised version later.

The company's Bylaws serve as a set of rules for regulating the company's internal affairs and how the company will operate in various day-to-day situations. The Bylaws normally do not need to be submitted when registering the company. They include the same information as the Articles of Incorporation, and also stipulate the rights and responsibilities of the company's members or shareholders, board members and executives; distribution of the company's profits; and the specific model for the company's operation. The Bylaws are the equivalent to an agreement between the company's members or stockholders. They usually cover topics such as the selection and retirement of board members and executives; quorum requirements for board decisions; conditions for calling a meeting of shareholders or special meeting; remuneration of board members; type, distribution and transfer of shares; recordkeeping for meetings; and liquidation procedure in case of bankruptcy. If the Articles of Incorporation and Bylaws are in conflict, the Articles take precedence.

The company's charter documents can be revised at any time, but they must be approved by the Board of Directors or the shareholder meeting. Once the revised Articles and Bylaws are finalized, one should follow them religiously. They are also used as the basis of adjudication for any disputes or lawsuits.

2) Distribute stock

After the company has been set up, it's time to distribute the stock as planned in the company charter. Many small or family businesses don't pay attention to the distribution of shares and don't draw up a share agreement, but this is not wise. Whether a company is large or small, the distribution of stock is a important task and should be properly carried out. A lawyer or accountant can provide you with a stock certificate, which should be carefully filled out. You should also record the distribution of shares, including the names and addresses of subscribers, number of shares purchased, method of purchase (cash, property, technology or services) and any limitations of transfer of shares.

In addition, if your company deals with specialized technology and is ambitious about expanding, you will inevitably want to seek venture capital. In this case, you must be extremely cautious about the private placement of stock. You should draw up a stock-purchase agreement to protect the company and the business owner's profits. The stock-purchase agreement is the most basic legal document defining the relationship between venture capitalists and the companies they wish to invest in, and its stipulations on the rights and responsibilities of the investors and the company will directly impact the company's growth and the distribution of profits.

Moreover, private placement of stock is different from selling stock publicly. To sell stock to the public C that is, to make an initial public offering (IPO) C one must register and be approved by the Securities and Exchange Commission (SEC). Therefore, whether you are selling stock to the public or for private placement, you should hire an attorney who will ensure that you are following securities regulations, which are highly strict and complex. You do not want the SEC to rule that your private placement with a venture capitalist is actually an IPO. Securities regulations are very specific about items such as the purchaser, amount of money and number of shares that can be involved in private placement of stock, and one should follow them closely in order to avoid problems or consequences.

3) Apply for business licenses

Most states require you to obtain a business license, a sales and use tax license and possibly other permits after registering your company. For instance, in Maryland, businesses who sell goods or services must obtain a sales and use tax license, and most businesses, including retailers and wholesalers, need to obtain a business license. The types of businesses that must obtain a business license in Maryland include entertainment, auctions, chain stores, construction, dry cleaning, agricultural machinery, scrap dealers, plumbers and electricians, warehouses, and restaurants. You should find out from your state or local business department which licenses and permits you need to obtain.

4) Register a trade name

Some companies find that in the course of doing business, they want to begin a new venture under another name. In this case, the company can use a trade name or DBA (doing business as). A trade name can be similar to the company's registered name or completely different. Before registering and starting to use your trade name, however, you should make sure that the name you want to use doesnt resemble any names used by other companies.

5) Pay dividends

If your company makes a profit, then dividends are distributed to your shareholders. When the IRS examines your company, they will require records such as the distribution of shares, issuance of stock, board meeting minutes, and records for distributing the dividends. If the company reports a loss and doesn't pay dividends, yet at the same raises the salaries of the Board Members and executives and gives other perks, then the IRS will look closely at what the company's Articles of Incorporation and By-Laws say about paying dividends and raising salaries to see if the company purposely transferred profits into upper-level salaries rather than actually suffering a loss, and may also examine the company's property tax situation.

6) Review contracts

As your company does business and grows, you will have to negotiate and sign all sorts of contracts and agreements, including sales agreements, service agreements, other business contracts, leases for office or store space, purchase agreements, merger agreements and so on. If you are working with international partners, you will need to draw up and approve many important documents and contracts, such as letters of intent, investment agreements, cooperation agreements, stock transfer agreements and so on. Reviewing contracts is very important. The details determine whether the contract is in accordance with laws and regulations and whether the rights of both parties are equally protected. Yet companies will often overlook this point, not realizing the importance of having an attorney review their contracts until they end up in a dispute or lawsuit. One must be very careful when entering into contracts.

7) Submit an Annual Report

Your company must submit an Annual Report to the state government, reporting the names of your Board Members and the company's address, and pay a filing fee. If you do not submit an Annual Report for two years, your company's registration will be canceled. If this happens and there are other companies who want to use the name of your company, they may seize the opportunity to register a company with that name. Therefore, in order to ensure the continued existence and growth of your company, it is essential to file an Annual Report and pay the filing fee in a timely fashion.

8) Hold regular meetings

It is important to hold regular meetings of the Board and of shareholders as called for by regulations and in your company's Articles of Incorporation and By-Laws, and for the number of people present and the meeting format to meet the requirements. Even small companies must make sure to do this. Otherwise, you may lose the protective shield of limited liability if you are involved in a lawsuit. The courts may decide that your business is not a real company, but just a means of escaping creditors, which would allow the other party to go after the shareholders' personal property. Carefully formulated Articles of Incorporation, regular meetings and keeping minutes of your meetings are among the basic factors in determining whether you will be protected by limited liability.

9) Pay attention to import and export requirements

Companies that deal with imports and exports should consider whether they need to apply for permits from the Bureau of Industry and Security, US Food and Drug Administration (FDA), US Department of Agriculture (USDA) or other government agencies.

In regard to exports, the export of military-civilian dual-use technology is very strictly controlled. Before exporting any such products, your company will need to obtain a valid permit.

Likewise, if you are importing products from abroad, there are several levels of government controls. If you are importing medical equipment, food, beverages or pharmaceuticals, you will need to obtain a series of permits from agencies such as the FDA or USDA. Submitting an advance manifest in accordance with the requirements of US Customs and Border Protection (CBP) will also help you avoid being selected for inspection, which can result in losses for your company if the CBP holds your cargo.

10) Protect intellectual property rights

If you or the company wants to have exclusive rights to a certain product or service, then you should apply for a patent or register your trademark as early as possible in order to avoid infringement by others. If you plan to operate in other countries as well, you should apply for an international patent or trademark.

Even if you're not using your trademark yet, you can protect it based on "Intent to Use," and then submit your materials once the trademark is actually in use. With patents, you can submit a Provisional Application to secure an application date, but you must submit the full application within one year. The Provisional Application is usually used in two situations: The company or inventor may want some time to raise capital and find a manufacturing partner before deciding whether to apply for a patent or sell the idea to someone else. Or the inventor may not have enough time to complete a full application before the invention becomes public, thus he or she will quickly submit a Provisional Application in order to protect the patent application date.

11) Apply for Section (8)

If your company would like to bid for government contracts for small businesses, you are recommended to apply for section 8 status which is designed to help economically and socially disadvantaged groups, such as minorities, women or people with disabilities. Once your company has an established track record and shows promise for growth, you should consider applying for Section 8(a) status with the Small Business Administration (SBA). As soon this status is approved and you receive your Section 8(a) certificate, you will have many more opportunities to win Federal purchase agreements. Obviously, this will greatly boost your company's growth.

In addition, there are many programs at the state level that support small businesses. Based on your business's circumstances, you could apply for status as a Minority Business Enterprise (MBE), Disadvantaged Business Enterprise (DBE) or Women's Business Enterprise (WBE). With this status, your company can individually bid on Federal or state contracts, or team up with large companies to bid for government contracts.

The above is a general introduction to immigration policies, and should not be construed as individual legal advice. For specific legal questions, please contact the Law Offices of Yu & Associates. Attorney Xiaohui (Sharon) Yu is a graduate of New York University School of Law, one of the top five law schools in the US, and has practiced law at some of the top firms in the US, UK and China.

Tel: 301-838-8986, Fax: 202-595-1918; E-mail:, Address: 110 N. Washington St., Suite 328E, Rockville, MD 20850. (All rights reserved.)

Ó Yu & Associates LLC, 110 North Washington Street, Suite 328E, Rockville, MD 20850, USA. Tel: 301-838-8986