11–20 of 39 posts
I don't see the point of authorizing that many shares. I've always authorized 1,000 and initially issued 100 to the founders. 1,000 is enough to get the % breakdowns you need and you aren't charged for having that many shares: http://www.corp.delaware.gov/frtaxcalc.shtml
Earlier quoted context omitted.
His list implies he's raising money and issuing options. Although only the percentage ownership should matter, many employees react very differently to getting a tiny number of options at a relatively high strike price vs. a big whopping number of options at a miniscule strike price.
A 2 min conversation should fix that.
I'm surprised to see the recommendation to incorporate in Delaware. Downsides to incorporating in Delaware: 1) You still pay full taxes in the state you are operating in (you don't get to avoid taxes by incorporating somewhere else). 2) If someone sues you, they can choose to sue you either in Delaware (forcing you to travel to Delaware to defend yourself), or your local jurisdiction. The Delaware courts can be frien…
He's assuming you're going to raise money. VCs and their lawyers prefer Delaware incorporations because everything's business-friendly, there's well-established case law, and therefore things like financings are easier to do.
He said:
>1. Flexible Laws.
Yes, this is slightly more attractive for VCs. But I imagine, unless you are in an odd state, that VCs can handle corporations incorporated in, say, California.
>2. No Wildcard Juries.
If you're sued in Delaware, which you don't have to be.
>3. Precedence = Less Litigation.
Ditto.
>4. It’s Free! (Well, almost)
Foreign corporation registration may end up making it more expensive.
> A little bit cheaper than California ($100..but they nail you for $800 every year in franchise fees)
You don't get out of California franchise fees by incorporating somewhere else. See California's Franchise Tax Board document FTB 1063.
>5. Privacy
Since you may have to register as a foreign corporation, this anonymity in Delaware may be moot.
I don't see the point of authorizing that many shares. I've always authorized 1,000 and initially issued 100 to the founders. 1,000 is enough to get the % breakdowns you need and you aren't charged for having that many shares: http://www.corp.delaware.gov/frtaxcalc.shtml
If you use the assumed par value capital method to calculate your franchise taxes (instead of the authorized shares method), your startup's franchise tax bill isn't likely to be very much.
I'm surprised to see the recommendation to incorporate in Delaware. Downsides to incorporating in Delaware: 1) You still pay full taxes in the state you are operating in (you don't get to avoid taxes by incorporating somewhere else). 2) If someone sues you, they can choose to sue you either in Delaware (forcing you to travel to Delaware to defend yourself), or your local jurisdiction. The Delaware courts can be frien…
My recommendation is always home state OR Delaware--the post is what I would personally do. I'd rather deal with the administrative issues early than reincorporate later. Also, in true hacker tradition, it's probably easier to hack the available free startup legal document sets if you are a Delaware corporation. Most if not all the docs assume the startup entity is a Delaware corporation.
Earlier quoted context omitted.
He's assuming you're going to raise money. VCs and their lawyers prefer Delaware incorporations because everything's business-friendly, there's well-established case law, and therefore things like financings are easier to do.
That's only part of what he says, and the rest doesn't seem really valid to me. He said: >1. Flexible Laws. Yes, this is slightly more attractive for VCs. But I imagine, unless you are in an odd state, that VCs can handle corporations incorporated in, say, California. >2. No Wildcard Juries. If you're sued in Delaware, which you don't have to be. >3. Precedence = Less Litigation. Ditto. >4. It’s Free! (Well, almost)…
"Asking a VC to sign a NDA is tantamount to splitting 10’s at the blackjack table" - Funny.
I don't see the point of authorizing that many shares. I've always authorized 1,000 and initially issued 100 to the founders. 1,000 is enough to get the % breakdowns you need and you aren't charged for having that many shares: http://www.corp.delaware.gov/frtaxcalc.shtml
This tidbit comes from my girlfriend who is a tax specialist and consultant who also read the article.
Earlier quoted context omitted.
My recommendation is always home state OR Delaware--the post is what I would personally do. I'd rather deal with the administrative issues early than reincorporate later. Also, in true hacker tradition, it's probably easier to hack the available free startup legal document sets if you are a Delaware corporation. Most if not all the docs assume the startup entity is a Delaware corporation.
Great post, Ryan! It is always easy to quibble with this or that aspect of how to launch a startup legally, but this is a great roadmap for founders to get them started in their thinking and to keep them focused on the right issues. It is quite consistent with the rest of your high-quality blog.
Earlier quoted context omitted.
If you use the assumed par value capital method to calculate your franchise taxes (instead of the authorized shares method), your startup's franchise tax bill isn't likely to be very much.
Why pay any extra $ when you don't have to? Many scenarios will end up with you paying greater than the minimum ($75).