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Legal advice?

I’m a young engineer that will need to officially start a company in the next month to handle IP that could will be internationally valuable. I’m working on a business model and plan, meeting with potential partners/clients/advisors, the works….however:

I have no idea how to start an S-Corp on paper. I have an LLC, but I think that’s different. Right? Is it an S-Corp that I want to start? Delaware?

I’m looking for good resources that I can review to give my company the best legal structure I can.

Thanks 🙂

  • Here is a really good resource: http://startuplawyer.com/

    You really need to conceptualized what your company is, and why. If it is to attract investors eventually, go c-corp in Delaware.

    Learn about share structures. Learn “why” you’re choosing the structure and setup the way you are, you will be challenged by someone no matter what you do, so know it and move on never to worry about it again (meaning until the leading series A investor requests it changed and you care to agree).

    Whatever you do, don’t be greedy and just get started.

    Reply

    • In case someone is too lazy to search that site, here is the key (heavily hyperlinked with details and reading):

      So in 2014, here’s what I’d do in the beginning:

      Incorporation

      (1) When: As soon as I was serious about making my startup a business, but after I checked my current job’s employment contract

      (2) Type of Legal Entity: C Corporation, and not an S Corporation or LLC

      (3) State of Incorporation: Delaware (since I’m at least potentially looking to raise capital)

      (4) Authorized Shares in Certificate of Incorporation: 10,000,000 shares of Common Stock

      (5) Par Value of Common Stock: $0.00001 per share

      (6) Aggregate Stock Issuance to the Initial Founders: 6,000,000 shares

      (7) Founders Equity Split: Depends on the Team, But Quickly but only after the Difficult Conversation(s)

      (8) Vesting For All Founders?: Heck yeah

      (9) Vesting Schedule: 4 years with a 1-year Cliff with Double-trigger Acceleration

      (10) Payment for Founders’ Shares: Cash and Intellectual Property

      (11) Handling of “Lost Founders”: Get an Assignment and/or Release (then wish them well)

      (12) Freak-Out on My Lawyer When I get My Delaware Franchise Tax Bill?: No

      Incubators, Mentors, Advisors and Developers

      (1) Choosing an Incubator: It’s all about the mentorship

      (2) Incubator Funding Documents: Easy and Light

      (3) Strike a Deal with a Mentor During the Incubator Program?: Probably not

      (4) Raise a Round Before Demo Day?: No, wait until after…unless it’s a great Series A.

      (5) Option Grant Size to an Advisor: 0.10% to 0.50%, but only after execution of an Advisor Agreement

      (6) Outsource all Technical Development?: No

      Raising Capital

      (1) Length of Investor NDA: 0 pages

      (2) Fees Paid to Pitch: $0

      (3) Investors: Accredited only (no crowdfunding until the rules are easier on startups)

      (4) Seed Round Structure: Convertible Notes

      (5) Convertible Note Incentive: Discount and Price Cap, but with a liquidation preference regulator.

      (6) Convertible Note Interest: 2-8%, but hopefully 2%

      (7) When to Hold Closing: On a Rolling Basis

      (8) First Purchase after Closing: A Legit Scanner

      Reply

  • Buy the book Incorporate your business: a legal guide to forming a corporation in your state. I bought it from amazon for about 35 dollars and within a month I incorporated in Delaware and you then need to elect s corporation status. If you are looking to convert your LLC into an Incorporation that is possible too but the book will really help you out.

    You could have an LLC be taxed like an S-Corp if you have more than one founder.

    Reply
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