1. Business Law & Order:
Basics of Business Formation
March 17, 2014

2. California | Illinois | Michigan | Minnesota | North Carolina | Texas | Washington, D.C.
www.dykema.com
Exceptional service. Dykema delivers.
Business Building Basics
Mark G. Malven

3. Exceptional service. Dykema delivers.3
Session Overview
• Business Formation Choices
– Pros and Cons
• Management Teams
• Advisory Boards (bonus
material)

4. Exceptional service. Dykema delivers.4
Business Formation
• Choice of Entity Pros and Cons
– Sole Proprietorship
– General Partnership
– Contractual Relationship
– C Corporation
– S Corporation
– LLC
• Relevant Factors
– Taxes – Distributions of (1) Income and (2) Upon Sale
– Financial Investors
– Equity Compensation

5. Exceptional service. Dykema delivers.5
Factors Supporting LLCs for Potential VC
• Members can still agree to corporate-like duties and
relationships.
• VC can be given preferred interests.
• LLC can easily morph into corporate form.
• Appreciation rights can incentivize employees.

6. Exceptional service. Dykema delivers.6
Why Banks Prefer Corporations
• Tried and true.
• Perception that cash is easily transferable to owners.
• Known collateral classification of ownership interests.
• Operating agreements are not standard.

7. Exceptional service. Dykema delivers.7
Management Teams
• Recruiting
• Evaluating
– The Trust Factor
• Compensation
– Equity Vesting Over Time
– “Valuing” the Equity
• Clear Agreements, including Buy-Sell Provisions
– Death, Disability, Divorce, Disinterest

8. Exceptional service. Dykema delivers.8
Advisory Boards
• Pros and Cons
• Benefits
– Objective, external perspective
– Raise profile
– Facilitating collaborative relationships

9. Exceptional service. Dykema delivers.9
Advisory Boards
• Costs
– Compensation – cash and equity
– Managing the meetings, esp. larger boards
– Pet projects (for collaborators)
– Members other projects and roles

10. Exceptional service. Dykema delivers.10
Advisory Boards
• Best Practices
– Define why you need a AB
– Keep it small
– Avoid pure window dressing
– Watch out for blowhards
– Mix up the backgrounds – e.g. academics and industry
veterans

11. Exceptional service. Dykema delivers.11
Advisory Boards
• More Best Practices – running the meetings
– Send materials early!
– Actively manage the meeting
– Require real work
• Put them on the agenda for short presentations
• Jump right into feedback (requires the pre-reading to
be completed)
– Include your team in the meetings

12. Exceptional service. Dykema delivers.12
Questions?

13. California | Illinois | Michigan | Minnesota | North Carolina | Texas | Washington, D.C.
www.dykema.com
Exceptional service. Dykema delivers.
Thank You.
Mark G. Malven

14. Next Business Law & Order Program:
Contracts 101 - April 21st
Moderator: Russ Brown