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The First Fork In The Road For Investor-Backed High-Growth Companies

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Investor-backed companies face a myriad of critical decisions throughout the life of their business. One of the earliest is what kind of legal entity to establish. As a practical matter, most investor-backed companies will elect to establish themselves as a limited liability company (LLC) or a corporation. This choice will set the foundation for the future and form the basis for liability protection, stakeholder rights and duties, and taxation.

Attorneys who have experience working with the distinct needs of investor-backed high-growth companies will help select an appropriate entity based on several factors. For this blog, we will look at corporations and LLCs from a governance and control perspective. 

Corporations

A corporation is overseen by a board of directors who are elected by stockholders. Neither stockholders nor board members have any operational role or authority to act for the company. Instead, the board hires senior management to run the day-to-day operations of the company. The board and stockholders typically only vote on significant matters such as financingins, equity transactions, and substantial acquisitions or divestitures of company assets.

The board also performs a valuable governance and oversight function, watching the management and ensuring that management’s actions are taken in the best interests of the Company and its stakeholders.

LLCs

An LLC’s governance and control structure are much more flexible than that of a corporation. At the outset, an LLC can choose to be “member-managed,” where the owners (the members) will manage the LLC directly, or “manager-managed,” which means that a separate individual or group of individuals (who may or may not be members) will manage the LLC.

The managers of an LLC (whether member-managers or managers) can assume direct day-to-day responsibility for managing the affairs of the LLC. Alternatively, the managers can appoint officers to perform the day-to-day management and take a governance and oversight role (like that of a board of directors in a corporation).

Inceptiv Law

Inceptiv Law brings years of experience with investor-backed high-growth companies to foresee and advance the needs of its clients. With deep industry experience and technical legal excellence in the transactional and operational issues faced by investor-backed companies, Inceptiv Law is in a unique position to answer the needs that investor-backed, high-growth businesses demand. Contact Inceptiv Law to schedule a consultation.

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Inceptiv

Inceptiv provides you with the legal confidence you need to launch and grow your business, and handle changes along the way. Whether you are just starting out, growing, or selling a high-growth, investor-backed business, you need experienced legal counsel.

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