Choice of Entity for Startups by Huan Le

Choice of Entity LLC or Corporation for the Tech Startup

512.799.5049 | [email protected] Huan Le

Agenda

Choosing the Entity

Additional Issues &

Documents

Considered

Do it Yourself


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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CHOOSING THE ENTITY The hardest and Easiest Thing You’ll Do


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)


Corporation

versus

LLC


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


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


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


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


ADDITIONAL ISSUES &

DOCUMENTS CONSIDERED Things you may encounter as you build


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


Some Terminology

• Preferred Stock

• Buy-Sell

Agreement

• Convertible Note

• Pre-money

valuation

• Series A, B and

Early Investors

• Lifestyle Business

• Private Placement

Memorandum


DO IT YOURSELF LAW Resources for you to use


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


http://www.sos.state.tx.us/corp/sosda/index.shtml





http://www.legalzoom.com/

http://www.legalzoom.com/

http://www.incorp.com/incorporation-formation-registration.aspx







Thank you.

Huan Le

512.799.5049

[email protected]
