From what I read, non-US citizens/residents can't take part in S-corps, and since I am physically located in Europe, should I ever want to partner up with someone and include them in the company, perhaps it would be easier with the LLC. It also seemed like a slightly lower hassle way of doing things. I could be wrong, but in the end, after doing my reading, I just picked one and got on with it.
The reason most attorneys advise Delaware is that the precedents are strongest there. Furthermore, it makes long-term legal costs lower because most corporate lawyers are familiar with Delaware's nuances.
All corporations are C by default. You have to file a special from with the IRS to become an S Corporation. S Corporations are flow-through entities which are not taxed at the corporate level. The reason VCs require you to be a C Corporation is two-fold:
1. VCs like to have unilateral rights and terms to give them downside protection such as liquidity preference and preferential stock classes such as Preferred Shares. S Corporations are simpler entities which only allow a maximum of 40 shareholders - as your company grows and you give stock grants or options, this won't work. LLCs only allow 75 shareholders.
2. VCs will claim that a C Corp structure gives you more flexibility. This is marginally true, but LLCs give you the same flexibility with slightly higher administrative cost but you can maintain the flow-through status which is advantageous.
The real reason is they want preferred shares and special rights. Stay an LLC or S Corporation if you don't need institutional investors. Angels are happy to invest in well structured LLCs or standard subchapter S Corporations.
You're most welcome. The best entrepreneur's legal guide is called "Entrepreneur's Guide to Business Law" published by Thompson / West Law written by Bagley and Dauchy. I bought it when I was doing my first start-up and I'm sure they have an updated version. I just found one at Amazon:
In general, I think too many young entrepreneurs give up too much equity too quickly because they fall for the "oh we're making the pie bigger so giving us a huge percentage is fine" fallacy.
There are so many things to take into account when taking VC money. Too many VC firms replace young CEOs quickly at which point the founders get heavily diluted. Also be careful of VCs that try to reserve too large of a pool for management they want to recruit.
Management team members recruited by your VC work for the VC, not for you, the CEO. When push comes to shove, they will side with the VC because they know the VC will find them another job if your start-up goes bust.
The golden rule of VCs is this: He who has the gold makes the rule.
One more reason to stay a subchapter S Corporation if you don't need to raise VC money:
- There is a special election you can make when you sell the company that allows you to sell the assets instead of the equity which is something you can get the acquirer to pay more for because they can get a stepped up basis at market value and then depreciate it to create tax savings.
I don't remember the exact research, but I believe subchapter S corporations that undertake the election sell for 10% more than companies that cannot or do not take the election with all other things being equal.
If this person actually had a good college education they'd understand the concept of opportunity cost. The more well educated you are, the higher your opportunity cost.
Having a top college in your pocket can also help build your network if you use it right. The author also misinterprets causation and correlation. Just because X% of the richest people in America are dropouts is meaningless. What % of the total population has a college degree? Probably something like 30%. That just shows this guy's article is poorly thought out.
It's a nice sensational headline but it falls flat on its face in terms of logic.
Or not. This could be a disaster for them given that people like Friedman actually have a relatively loyal following. Going free is not the answer to everything.
True, but I think the exposure that Friedman will now receive by making his columns free more than offsets the loss of "pay" revenue. This move will enhance both the Times readership and its reputation.
This is exactly why you don't move out to Silicon Valley. Build your start-up, get out, and enjoy your life. You might even have something left to give to charity.
In Silicon Valley you'll blow your money on a huge house, a plastic wife, and kids who want a BMW the moment they can drive. Oh, and don't forget the taxes.
