131–140 of 176 posts
"you want ownership of these intellectual property assets to be the property of the startup, not the individual founders" ... "means that nobody can hold the company’s future hostage purely on the basis of their past contributions"
This ain't so easy nowadays.
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When it is time for fundraising, is it possible to just create a new C-Corp, then sell the assets of the LLC to the C-Corp? Are there major tax implications? Is it possible to sell the assets for a $1? Or would that be in violation of some tax rule?
No cash is needed to sell the assets or LLC to the C Corp. Most likely, you would sell the assets of the LLC to the C Corp in exchange for some number of shares (valued at the pre-money valuation of the company) and then issue additional shares equal to the VC money such that the total value of the new C Corp is the post-money valuation. Afterwards, the founders can distribute the shares and wind up the LLC. The alte…
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Why not use Clerky? It's about a grand all-in, and since YCombinator uses them for all their incorporations, it's what all your investors are likely to expect.
Because it generates a Delaware C-Corporation, and a DE C costs more annually to operate than an LLC. Among other things, most small business operators want pass-through taxes.
I hate to be that guy, but no one should take legal or accounting advice from a blog post. There are a lot of good reasons for your company to be an LLC or C-corp and there are a lot of good reasons to incorporate outside of Delaware. Nevada for example also has no corporate income tax. Montana, South Carolina, and New Mexico don't specifically regulate money transmitters. Delaware is great for share holder rights, b…
This is not that simple. As a rule, I apply a discount (for legal cost and risk on all sides) to any American company raising funds out of a non-Delaware entity.
Gust spends no time talking about what happens when you try and sell a C Corp. If it's a stock sale great... if it's an asset sale, incredibly not great... you will have double taxation. This matters. $10M paid to the company for an asset, turns into $6.5M after 35% corp taxes (using general numbers) and then $6.5M than distributed to shareholders, assume 30%+ (20% + state taxes + AMT (for now)) so $6.5M is now $4.55…
Here's something I'm curious about. First off, I understand that few of you are lawyers, and any of you who are aren't being paid by me so none of this constitutes legal advice. :) I'd certainly talk to a lawyer before acting on it in any case, I just can't wrap my head around how Delaware is such an advantage. I read that Delaware C corps/LLCs are the way to go because they're inexpensive. I'm in Texas. It looks lik…
When we started getting term sheets, the big law firms for general counsel were willing to take us on under the expectation we pay them back until we closed our Seed Round. They helped to structure the DE C-Corp, transfer everything to the LLC, and directed me on all the paperwork that needed to be filed.
Winding down the LLC was easy, but you just need a controller/accountant to help you close the books properly and file the paperwork.
If you intend to go this route, my only major recommendation is to pick a name that is different/slightly different than what you ultimately want the company to be called. We ran into naming conflicts, which was an unnecessary PITA.
Second side-piece of advice: ask the general counsel to give you a fixed-cap cost for closing the round. We got stuck in some licensing negotiations as part of the close, which made things way more expensive than they should have been.
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LLCs make perfect sense for startups, too.
If they don't want to grant equity or take investment, sure. But doing one of those two things means the legal costs of starting with an LLC (which aren't standardized) substantially outweigh any tax savings, and almost no startups prior to that point have positive cash-flow anyway so taxed profits aren't much of an issue.
Probably a stupid question, but if you're bootstrapping a startup into which you might (but also might not) take investment at some point, wouldn't it be better to do whatever has the lowest cost and administrative overhead, and then sign over all its rights/assets/etc. to a fresh Delaware C-Corp when/if you have investors ready? So for example if you're in California you might do a California LLC until/unless you ha…
You can divide equity and issue incentive equity compensation at an LLC easily --- for less money than it takes to properly incorporate a Delaware C Corporation. We have an LLC with multiple classes of stock and vesting, and it took just a 20 minute call with our lawyer to get there. Our last company, Matasano, was an LLC for its entire lifespan (we eventually filed taxes as an S-Corp, but never reincorporated). LLCs…
> it takes less than an hour to get a Delaware LLC on the Internet Setting LLC's up is easy (even setting up a C-Corp is considerably easy) but for me the problem is always to maintain it and file taxes and other stuff on time etc. Is there any startup/service that helps me solve that problem?