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3. ENTITY FORMATION

d. Government Filings

Articles

The next step in creating an entity is to file the "articles" in the location of organization. (In Delaware, the articles are called "certificates".)

The articles comprise the primary governing document of a business entity. The articles contain basic information about the entity, such as its name, purpose, officers, directors, and agent for service of process. The document may also address additional matters such as transfer limitations, dissolution events, management authority, indemnification rights, liability limitations, and investor rights to distributions.

You may amend the articles at any time, except as limited by applicable law, agreements, and the articles themselves. Amended articles must be filed with the state.

Registration

If you organize your entity in a “foreign” jurisdiction away from the main office (such as Delaware), you may also need to register the entity in its home state. Entities must usually register in every location where they transact intrastate (as opposed to interstate) business.

Failure to register may result in government fines and the suspension of business privileges. For example, an unregistered entity may be prohibited from filing a lawsuit in state court.

Additional Documents

California and Delaware do not require the filing of bylaws, shareholders' agreements, operating agreements, or limited partnership agreements. However, you may wish to file such documents in order to put third parties on notice of limitations in the documents. In addition, states other than California and Delaware may require such filings.

States typically require the filing of periodic reports. For example, California requires corporations and LLC's to file a “Statement of Information” within 90 days after filing the articles. After the first year, companies must file a Statement of Information on an annual basis if a corporation, or bi-annually (every two years) if an LLC. Delaware does not require corporations or LLC's to file a periodic report.

If your new entity has passive investors, you may need to file additional documents with state and federal agencies in connection with the securities offering. Private equity funds generally raise capital in private placements that are exempt from registration. The most common exemptions at the federal level are contained in Regulation D. In a "Reg D" offering, the fund must file a “Form D” with the Securities and Exchange Commission within 15 days after the first sale of securities. Failure to file does not invalidate the federal exemptions, but may result in fines and the loss of the exemptions in future offerings.

Licenses and Permits

Your entity must obtain licenses and permits as required by law. A fund management company may need a local business license. If the company has an office, it may also need to obtain one or more of the following permits:

• construction permit
• burglar alarm permit
• fire alarm permit
• land use permit
• zoning approval

A fund management company may need to register as an "investment adviser" at the state or federal level. The individual officers and employees of the company may also need to register. A private equity fund may need to register as an "investment company" at the state or federal level. In California, the applicable agency is the California Secretary of State. At the federal level, the applicable agency is the Securities and Exchange Commission.

Usually, a company must wait for the licenses and permits before doing business. Thus, you should start the application process as early as practicable.

Fictitious Name

Some companies do business under fictitious names (DBA's) that differ from the names in their articles. ("DBA" stands for “doing business as”.)

State and local agencies may impose filing and publishing requirements on companies using fictitious names. For example, companies in California must comply with the following:

• file the DBA with the county clerk in the county of the principal place of business
• file the DBA in other counties where the company does a significant amount of business
• publish the DBA once a week for four consecutive weeks in approved newspapers
• file an affidavit of publication with the county clerk(s) within 30 days

These requirements do not apply to companies doing business under the names contained in their articles.