Legal advice every startup founder should know (with Fred Greguras of Fenwick and West)

http://blog.guykawasaki.com/2007/10/ten-questions-1.html

by nickb • 19 years ago

31 8 19 years ago

blog.guykawasaki.com

DocSavage• 19 years ago

We're considering immediate incorporation as an S Corp and then switching to a C Corp at the beginning of next year. I've just left my job, and it would be nice to have some of the initial startup expense flow through to my personal taxes.

When checking on the California vs Delaware incorporation, I ran across this: http://venturebeat.com/2007/01/30/roundup-bombs-dont-do-dela... If we get into YC, our incorporation process seems mostly set. If not, we might consider a California S Corp for this year.

Shooter• 19 years ago

It's just as easy to convert an LLC to a C-Corp unless you've done something really crazy in structuring it. Google the advantages that an LLC has over an S-Corp and see how it all applies to your situation. Examine the differences regarding taxes, fringe benefits, RULPA, etc. For most use cases, I strongly prefer an LLC to an S-Corp. The S-Corp is basically dead as an entity for new ventures, because most if not all of its benefits have been surpassed by the LLC.

Since I'm not big on 'flipping' companies, I even prefer LLCs to C-Corps USUALLY. I have also received VC funding for LLC startups multiple times, despite reading that it is 'basically impossible' in numerous articles. It IS more difficult to get funding as an LLC in most cases, but in some situations it is actually easier to get outside investment as an LLC. [I received investments from two international firms (Irish and Chinese) and they specifically stated that they appreciated that we were an LLC instead of an S or C Corp! There are fewer restrictions on foreign investment and ownership in LLCs. We took the investment largely to get access to their distribution networks, and the flexibility of the LLC helped us immensely because you can separate 'ownership' interests from 'economic benefit' interests, etc. I also know some angel investment groups that prefer LLCs because of their flexibility.]

I've discovered that (well-intentioned) people often dispense bits of startup advice like they are undisputed truths, when they are actually speaking to their own specific history and goals. They will tell you that you MUST incorporate as a C-Corp in Delaware, for example. That may be a MUST for them, but not for you. Not every business wants to flip to Google or Yahoo within a year. Not every business wants to go public. I can't think of very many 'Universal Truths" about startups...you just have to research everything and make your own decision based on YOUR particular circumstances.

GammaStats• 19 years ago

I can certainly understand why you would want to incorporate in California as it has the single largest local economy in the US, however you may want to take a look at: http://www.forbes.com/lists/2006/9/06beststates_The-Best-Sta....

Really though, if you are an online company what you need are big pipes and good brains. Physical location is not as important.

Forbes recently ranked all the states for their business friendliness and California didn't do to terribly well (36th). Virginia was the best followed by Texas and North Carolina. We are seriously considering incorporating in NC since they are so business friendly. Raleigh was ranked 2nd (nationally) in being the best city to start a company too. Furthermore it is the home of the research triangle so there's a lot of brains floating around there.

Best of luck.

daniel-cussen• 19 years ago

His sentences are really long.

henning2• 19 years ago

"Investors will examine the creation of IP very carefully in such a situation as they don't want to buy into a law suit."

Unless the "IP" (a bullshit weasel word if ever there was one) is YouTube.com, in which case investors are eager to pay billions of dollars for a site where 90% of the compelling content is copyrighted by someone other than the person posting it.

pg• 19 years ago

He means the IP of the startup itself, not of the content flowing through it. Google would have been a lot more worried about buying YouTube if some of the code had been written for one of the founders' previous employers.

henning2• 19 years ago

Eh, you're right, although I do think the fact remains that buying YouTube is buying a lawsuit.

Legal advice every startup founder should know (with Fred Greguras of Fenwick and West)

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