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• Legal Structure <br /> Watermark began as a sole proprietorship in January of 1993 by Michael Gill. It was then <br /> converted to a partnership by Maureen Gill and Michael Gill in 1994. By the beginning of <br /> 1998, Watermark will change to a limited liability corporation, and add Harlan Jacobs of <br /> Genesis Business Centers,LTD., as the third founder. Business advisors recommended an <br /> LLC as the most effective structure for this company, since it provides officers and investors <br /> liability protection, avoids double taxation, while also offering a convenient mechanism for <br /> raising capital to finance growth. <br /> With regard to the Watermark Corporation stock,the company intends to authorize <br /> 10,000,000 shares of its common stock. Of these authorized shares, a total of 210,000 shares <br /> will be issued to the founders as follows: <br /> Michael Gill 100,000 shares <br /> Maureen Gill 100,000 shares <br /> Genesis Business Centers,Ltd. 10,000 shares <br /> The outside investors will be purchasing 100,000 shares at$ 5.00 per share. Accordingly, <br /> their investment in the aggregate will entitle them to about a 33 percent ownership position <br /> in the company( 100,000 shares/310,000 shares). <br /> • The $5.00 per share price of the stock would make this stock eligible for Small Company <br /> Offering Registration(SCOR). This would permit private trading of the stock on the <br /> interne to raise capital. Additionally,the SCOR offering removes the restriction of having <br /> to hold stock for one year. <br /> In the LLC structure, share holders must report corporate profits or losses on their income <br /> tax for their corresponding ownership of the company. Eighty percent of pre-tax net income <br /> will be distributed to the share holders as dividends. As the corporation becomes profitable <br /> the investors will begin to see a return on investment, and will have the resources available <br /> (from the dividends)to pay their share of the taxes on the corporate income. More <br /> importantly,after the payment of the taxes,there should be a sizeable remainder that is their <br /> annual net return from their investment in the company. <br /> • <br /> 2 <br />