If you are a permanent resident living in SV and want to build a developer team in your home country, what is the best way to structure the company? I understand that it is best to talk to a lawyer but I would really appreciate if anyone can share their experience in this regard or can give some general guidance.
Lecture 18: Legal and Accounting Basics for Startups
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Re: Lecture 18: Legal and Accounting Basics for Startups
#32If you are bootstrapping, does it make sense to start as a Delware LLC to keep your tax liability at a minimum and then switch to Delware C Corp when you raise funding?
You are not likely to have any tax liability anyways, so it would be easier and probably cheaper to incorporate first. Reformation is a headache.
Re: Lecture 18: Legal and Accounting Basics for Startups
#33If you are bootstrapping, does it make sense to start as a Delware LLC to keep your tax liability at a minimum and then switch to Delware C Corp when you raise funding?
You are not likely to have any tax liability anyways, so it would be easier and probably cheaper to incorporate first. Reformation is a headache.
My understanding is that if you form a C Corp, then you have to pay corporation tax and then your personal income tax. With LLC you can avoid that. Probably not an issue if you are paying yourself the minimum salary.
Re: Lecture 18: Legal and Accounting Basics for Startups
#34Earlier quoted context omitted.
You are not likely to have any tax liability anyways, so it would be easier and probably cheaper to incorporate first. Reformation is a headache.
My understanding is that if you form a C Corp, then you have to pay corporation tax and then your personal income tax. With LLC you can avoid that. Probably not an issue if you are paying yourself the minimum salary.
You pay corporate tax on profits. You're not going to have any recognizable, taxable profits if you're bootstrapping a company that will take VC at some point.
Re: Lecture 18: Legal and Accounting Basics for Startups
#35I thought this was good, but I was a little disappointed that they didn't have time to get to the "equity for employees" part (I also don't know if this was covered in another video, as I've only been watching sporadically).
Do people have thoughts about this? It seems to me that this area is generally somewhat opaque, with many people on either side being reluctant to discuss it honestly for various reasons (founders might want employees to think that a pittance is reasonable, employees might embellish when talking to others, etc).
What do you do if you just want to be fair? What do you do differently for employees #1 and #2 vs #10, #20, etc (assuming you ever get that big)? How do you adjust for differences in expected value of the employee to the company (e.g. recent grad vs. senior "executive" type with valuable industry connections)?
When should you allocate an employee equity pool and how do you size it appropriately?
Re: Lecture 18: Legal and Accounting Basics for Startups
#36The first slide is ironic. "Keep it simple" by forming a Delaware corporation is advice constantly repeated in some circles and it's simply asinine. The simplest option for founders is to incorporate in the state in which they reside/plan to conduct business as they are going to have to file as a foreign entity in that state anyway. The retort is "But investors won't invest in my California LLC!" The first fact this…
>> ...by forming a Delaware corporation is advice constantly repeated in some circles and it's simply asinine. Do you have a few sources to back up this claim?
Unless the company is only in Delaware, forming a Delaware corporation causes it to have at least two different sets of tax laws to contend with. As startups are typically not in a very strong financial position, chances are that for most start ups such a choice is introducing pointless and worse potentially very costly complications. For example, a company that registers as a Delaware corporation but spends any time in Calofrnia conducting or operating its business (e.g. for YCombinator) almost certainly has to register as a foreign corporation in California and pay the minimum franchise tax. They'd have to pay the same as a corporation registered within CA (not as a foreign entity). So the Delaware incorporation is just an added legal and financial complexity with what is very likely little or no benefit (i.e. asinine).
Re: Lecture 18: Legal and Accounting Basics for Startups
#37Earlier quoted context omitted.
My understanding is that if you form a C Corp, then you have to pay corporation tax and then your personal income tax. With LLC you can avoid that. Probably not an issue if you are paying yourself the minimum salary.
You pay corporate tax on profits. You're not going to have any recognizable, taxable profits if you're bootstrapping a company that will take VC at some point.
Exactly, and salaries are generally deductible as a business expense from the company's income. So you're not getting double-taxed there.
Re: Lecture 18: Legal and Accounting Basics for Startups
#38Earlier quoted context omitted.
You pay corporate tax on profits. You're not going to have any recognizable, taxable profits if you're bootstrapping a company that will take VC at some point.
Exactly, and salaries are generally deductible as a business expense from the company's income. So you're not getting double-taxed there.
I am certain that you pay taxes on revenue, not on profit.