choice of entity for startups by huan le
TRANSCRIPT
Agenda
Choosing the Entity
Additional Issues &
Documents
Considered
Do it Yourself
512.799.5049 | [email protected] Huan Le
Huan Le – where I’ve been
DiCentral Corporation
General Counsel & CAO (2007 – present)
Medifr, Inc
CEO (2012 – present)
Healix, Inc.
Corporate Counsel (2003-2007)
Zeleskey, Cornelius, Hallmark Roper & Hicks
Associate, Corporate Section (2000-2007)
Yellow Thunder Media
Legal Advisor (2010 – present)
Caphin, Inc.
Advisor & Founder (2012 – present)
JD
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512.799.5049 | [email protected] Huan Le
CHOOSING THE ENTITY The hardest and Easiest Thing You’ll Do
512.799.5049 | [email protected] Huan Le
Lots
of
Ch
oic
es
• No entity (sole proprietorship)
• General Partnership
• Assumed Name (dba)
• Limited Partnership
• Limited Liability Partnership
• Professional Corporation
• Limited Liability Corporation
• Corporation (S-Corp or C-Corp)
512.799.5049 | [email protected] Huan Le
General Characteristics
Corporation
• C-Corp or S-Corp
• Owners vote for Board of Directors, who choose managers
• Articles of Incorporation, Bylaws, and shareholder agreements are controlling Documents
• Corporate Formalities need to be followed
LLC
• Can be taxed as
partnership or corporation
• Member-managed or
manager-managed
• Operating Agreement is
the controlling Document
• Basically it’s a formal
partnership with limited
liability characteristics
512.799.5049 | [email protected] Huan Le
Advantages of Each
Corporation
• Multiple classes of stock
• Easy to add and subtract
stockholders
• Stock Options
• Easy to understand
LLC
• Very flexible ownership & capital structure (BUT more complex structures increase cost)
• Pass-through taxation is possible without ownership restrictions of an S-Corporation
512.799.5049 | [email protected] Huan Le
Which one to pick
Corporation
• You intend to raise capital
in 1-2 years
• You want to issue equity
to employees, but restrict
the ability of the
employees to be treated
as partners
• You want to reinvest
profits in growth
LLC
• You don’t intend to raise
capital from others soon
• You’re the only owner
and want simple
paperwork
• You want to be taxed as a
partnership
512.799.5049 | [email protected] Huan Le
Some Case Studies
• Side business for a programmer
• Two friends who want to do something fun and interesting
• 2 friends, wanting to launch a new game app and bring in a developer.
• One friend, one investor, looking to launch a media company. No additional investors
• Friends trying to raise money for a new Biotech business
512.799.5049 | [email protected] Huan Le
ADDITIONAL ISSUES &
DOCUMENTS CONSIDERED Things you may encounter as you build
512.799.5049 | [email protected] Huan Le
Consider These Things
• The double-taxation bogey-man
• TX, DE or NV
• What if my partners and I disagree?
• What if my partner dies or gets a divorce?
• Do I really need to raise money?
• Insurance
• Accountant/QB
512.799.5049 | [email protected] Huan Le
Some Terminology
• Preferred Stock
• Buy-Sell
Agreement
• Convertible Note
• Pre-money
valuation
• Series A, B and
Early Investors
• Lifestyle Business
• Private Placement
Memorandum
512.799.5049 | [email protected] Huan Le
Resources for your filing
Texas Sec. of State
• http://www.sos.state.tx.us/corp/
sosda/index.shtml
• Registered Agent
• No par value
• 1,000,000 shares
• Directors & officers
Third Parties
• http://www.legalzoom.com/
• http://www.incorp.com/incorpo
ration-formation-
registration.aspx
• A law firm
512.799.5049 | [email protected] Huan Le