Comments on: What state should I incorporate in?

By: Nate R

Nate R — Mon, 22 Aug 2011 03:49:02 +0000

Hi YokumGreat post. I have a few questions regarding my venture. Sorry about the lengthy response.I’m in the process of forming an LLC for a venture that I started. I brought-in a co-founder (personal friend) who serves as my technical arm. We have a customer and need to form the company asap.Questions:1. Should I form the LLC with a 100% stake first and then sign a MoU with the co-founder awarding him a stake with a vesting schedule? Or, should I include him as the member of the LLC at the time of formation? Are there pros/cons for either approach?2. If I was to apply a vesting schedule for a stake, how does it work when the LLC is being formed? I’m planning to use legal zoom or Nolo to save on costs. Since both these options don't allow for vesting, should I include those provisions within the Operating agreement or a separate MoU with the co-founder?3. If one was to form the LLC with 100% stake, is it of any advantage to have your spouse be a stakeholder too irrespective of whether he/she is a contributing member of the company? For example, I start the LLC with the following:T=0:
member 1 (co-founder 1): 89%
member 2 (co-founder 1?s spouse): 11%T1=T+1 month:
member 1 (co-founder 1): 51%
member 2 (co-founder 1?s spouse who is not contributing): 8%
member 3 (co-founder 2): 41%Assume at T2 we receive interest from a VC, and assuming we change the company from an LLC to a C-Corp., and the company is valued at $100K.T2=T+1 year
member 1 (co-founder 1): 51% – value $51K
member 2 (co-founder 1?s spouse who is not contributing): 8% – value $8K
member 3 (co-founder 2): 41% – value $41KWill the value of member2?s stake (per share) be perceived any lesser than the other members because of the fact that the member was not an active contributor within the company?Usually, the VCs put a multiplication factor to buy-out the shares from the respective shareholders. Assuming the factor is 3x (average for a product company), will member2?s factor be any lesser because he/she is a passive stakeholder?Any input is appreciated.ThanksNate

By: Jyonglee2002

Jyonglee2002 — Fri, 18 Feb 2011 07:25:25 +0000

Does anyone know if you have a medical practice and have a PLLC and I want to venture out, open other business like a restuarants to add to a diverse portfolio of businesses… would it be better to incorporate to keep all the business under one umbrella or create a separate LLC?

By: PHInventor

PHInventor — Wed, 05 Jan 2011 09:59:12 +0000

I have bootstrapped development of a consumer health care product with around $150K of my own money. I own all the IP in my own name. I plan to launch in 2011 but I have not yet formed a company (or companies). I believe the ultimate market potential for the product is $30-$100M / year. I would be happy to keep all the equity myself if I can fund growth through sales alone, but will certainly sell equity to angel investors if that's what's needed to make the company thrive.

I live in NY. My manufacturing is spread across the US but I may decide to start by using my NY property as a base of operations (e.g., early warehouse/shipping). In my initial chat with an experienced business formation attorney I was advised to create a NY-based LLC because it would save me some DE fees, including filing as a foreign company in NY, etc. Avoiding the DE fees makes no sense to me because if my project succeeds, I'd assume the DE fees would be trivial next to the benefit I will see from already having formed in Delaware and not having to deal with that issue when I am in a rapid-growth phase, seeking funding, etc. If my project fails, the DE fees would be trivial next to the losses I have already incurred from patent filings and other costs. Am I missing something here? Given the scenario, is there a compelling reason to form in NY rather than DE?

By: Lawinc

Lawinc — Thu, 11 Nov 2010 12:08:41 +0000

Incorporating business online is a possible choice, and certainly an option you should consider. There are lots of online incorporation services to choose from, and their services are pretty competitively priced.

By: Coop

Coop — Mon, 25 Oct 2010 23:48:29 +0000

Hello, I'm currently DBA a Texas sole proprietor. I am going to change the structure before 12/31 of this year. My goals are:
#1 - reduced tax liability
#2 - personal asset and liability separation

If I am sued personally, I do not want it to affect my business and vice versa. The legal process scares me much less than the ramifications of the PR of being sued. Sometimes accounting error lead to public filings I'd like that to be reflected in the appropriate entity if that ever takes place. Then, if a client enquire's about such a filing, they'll know the nature is business/personal before they ask.

I am a small business owner and only employ myself and my wife works for me part-time. I am not going to have a large number of employees or will I be looking to ever become a very large business. If I become wildly successful, I might have 5 employees, but likely they will still remain contractors.

I have heard that Wyoming is a great place, but, everything that I'm finding lately points me to simply just C-corp in Nevada. Although double-taxation is a possibility, it is unlikely as I could opt for $0 retained earnings and therefore not have dividends that year (only income tax). Texas does have a franchise tax but there aren't any state income taxes.

Would it benefit me to have a c-corp from Nevada/Wyomic (any advice on either) holding the general partner role in an LLC (from TX/NV/WY??) and me personally holding the limited partner role? Then income would flow to me persaonllay from the LLC unless we retained the earnings and then it would be taxed at the corporate rate?

Any advice would be greatly appreciated.

By: danstuart

danstuart — Wed, 30 Dec 2009 17:45:57 +0000

Thank you.

Trying to setup an online business outside the US but that which can use modern, secure payment gateways, yet remain free from US tax is next to impossible. You can setup offshore, but the payment/merchant account options are poor. You can register in the US, but then you are paying tax. The trade-offs seem simple but are complex.

If anyone has experience/success here please let me know.

By: Yokum

Yokum — Tue, 29 Dec 2009 11:48:32 +0000

@Dan – you should consult with a tax advisor. If you are incorporated in DE, the company will be exposed to US taxes. If a company intends to derive most of its revenue from non-US sources, then considering an offshore jurisdiction may make sense.

By: danstuart

danstuart — Sun, 27 Dec 2009 17:56:55 +0000

Great article. Quick follow-up: if I incorporate a foreign company in Delaware and take online payments into this company but then remit them overseas, does this then negate the tax benefits of Delaware? Cayman Islands would seem to be preferred in this case, but only if similar merchant account facilities were available. Correct?

By: Yokum

Yokum — Wed, 09 Dec 2009 05:32:05 +0000

@Will – Qualifying to do business in CA is independent of angel financing. A company operating in CA must qualify to do business in CA.

By: Will Chow

Will Chow — Wed, 09 Dec 2009 03:40:55 +0000

You mention that a DE corp operating in CA must file in CA as a foreign corp to raise VC. Is this also necessary to raise angel or F&F funds?