How to Set Up & Run a Business in the USA

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  • Brief introduction about who we are & what we do
  • We can do either or both, depending on what the client wants/needs
  • We can grow as they need us; we save them employment costs (recruiting, salary, stock options, termination costs) 2) we are independent of the company, thus, numbers will be unbiased 3) Saves CEO time and $$
  • Emphasize that Ravix can grow with the client
  • Emphasize that Ravix can grow with the client
  • Emphasize that Ravix can grow with the client
  • We have worked with and recommend a variety of recommendations for each vendor type

Transcript

  • 1. How to Set Up & Run a Business in the USA A Step by Step Guide by Tom Pai, MBA Ravix Group Inc.  226 Airport Parkway, Suite 400  San Jose, CA 951101 Strategic Guidance, Hands-On Implementation
  • 2. Step by Step Guide1. Establish a Legal Entity2. Get a FEIN – Federal Employee Identification Number3. Set Up Bank Accounts4. Hire Your Team5. Pay Your Employees and Provide Benefits6. Get Business Insurance7. Keep Track of Your business Using Correct Accounting8. Pay Taxes9. Sell Your Company for $1,000,000,000,000,000,000,00010. Repeat!2 Strategic Guidance, Hands-On Implementation
  • 3. 1. Establish a Legal Entity What kind? C-Corporation (Inc.)? Limited Liability Company? C-Corporation: Pros: Allows for complex ownership structures; common stocks & preferred stocks with different rights; easy to establish; C-Corp is a “legal individual” & can provide better protection Cons: Double taxation – dividends distribution are taxable; more complicated administrative rules regarding operation of C-Corp Limited Liability Company: Pros: Pass through profits & losses to shareholders; simplified administrative rules to operate (LLC = cheaper to maintain) Cons: Complex ownership structure is difficult to establish & manage, ownership rules for foreigners & foreign entities complicated, complex rules & tax situations for owner/managers California or Delaware? For private company, very little meaningful differences. Some small advantages for founders of Delaware company. Delaware company more expensive to maintain. 3 Strategic Guidance, Hands-On Implementation
  • 4. 1. Establish a Legal Entity (cont.) The BIG question: Which is a better structure for raising capital? C-Corporation.• Complex ownership structure better suited to protect interests of outside investors• No effect to shareholders until time of sale of shares (no pass through of profits and losses)• Equity Compensation (i.e. stock options or stock grants) easier to administrate with C-Corp• Investor familiarity with C-Corp structure a big advantage4 Strategic Guidance, Hands-On Implementation
  • 5. 2. Get a FEIN – Federal EmployeeIdentification Number A FEIN is more than an employee tax ID. It is an ID for your company, used for doing everything from opening bank accounts, filing income tax returns, obtaining credit from vendors, paying contractors, as well as establishing payroll for employees. How to Apply: •Complete and file a for SS-4: http://www.irs.gov/pub/irs-pdf/fss4.pdf or •Apply online: https://sa.www4.irs.gov/modiein/individual/index.jsp When to Apply: Immediately upon formation of your legal entity. Ask your lawyer or accounting professional.5 Strategic Guidance, Hands-On Implementation
  • 6. 3. Do’s & Don’ts of Bank AccountSet Up• Don’t open a simple business account at the local bank branch of retail bank – this is the wrong type of account.• Do consider opening an account with a business focused bank that caters to startups, such as: Silicon Valley Bank Bridge Bank Square 1 Bank Comerica Bank• Do ask how and what they can do to help you grow your business.• Do ask them what they know about your industry and market.6 Strategic Guidance, Hands-On Implementation
  • 7. 4. Hire Your Team GET HELP FROM A HUMAN RESOURCES PROFESSIONAL WHEN HIRING FOR YOUR BUSINESS.• Know the rules and procedures for seeking employees, interviewing, hiring AND firing.• Understand US laws on discrimination, equal opportunity, work rules, compensation, and benefits.• Numerous compliance issues for workplace and employees. Need to understand and follow the laws!• Stick with “best practice” for hiring, employment agreements, compensation, firing. DON’T try and figure it out yourself. If you are moving to the USA and working at a U.S. Entity:• Need to apply for a social security number: http://www.ssa.gov/pubs/10096.html#a0=1• Get help to understand USA personal tax system. 7 Strategic Guidance, Hands-On Implementation
  • 8. 5. Pay Your Employees & ProvideBenefitsPayroll• Do use a qualified payroll service with national capabilities (ADP, PayChex, PayCycle, Paylocity).• Don’t use a bank’s payroll service or QuickBooks payroll service.Employee Benefits• Essential: Health Insurance. A must for every company. There are numerous options and plans to suit every budget and circumstances. Costs for small business health insurance is regulated. All brokers sell the same policies.• Optional: Retirement. If you hire more senior employees, this becomes highly important.What is PEO? (TriNet, Insperity, ADP TotalSource)• “Professional Employment Organization;” “employee leasing”• Provides payroll and benefits coverage and administration for simple monthly fee per employee.• Can be good solutions for small companies with few employees and not expected to increase.• Acceptable for those with transferred foreign employees here on L-1 visa.8 Strategic Guidance, Hands-On Implementation
  • 9. 6. Get Business InsuranceGeneral Liability & Property• Covers property and acts by employees while working or traveling on business. Required for most office space leases. This is essential from Day 1.Product/Service Liability• Provides coverage for claims against your product or service. Cost and coverage varies by type of business you’re engaged in.Directors & Officers (“D&O”)• Protection for claims by employees and shareholders against the Directors and Officers of the company. Usually required by outside investors. Costs can vary a lot. Make sure you work with a knowledgeable insurance broker.9 Strategic Guidance, Hands-On Implementation
  • 10. 7. Keep Track of Your Business UsingCorrect Accounting HAVE AN ACCOUNTING PROFESSIONAL DO YOUR ACCOUNTING CORRECTLY FROM THE BEGINNING.USA GAAP (Generally Accepted Accounting Practices) is different than IFRS interms of:•Reporting format•Consolidation of multiple companies•Treatment of R&D expenses•Revenue and expense recognition methodologiesGAAP Reporting vs. Tax Reporting•Cash vs. Accrual Accounting•Categorize expenses correctly for tax purposes – certain items not 100% taxdeductible (e.g. Travel and Entertainment)10 Strategic Guidance, Hands-On Implementation
  • 11. 8. Pay TaxesFederal & State Income Tax Returns – Filed Annually• Estimated tax payments due quarterlyOther Income Tax Filings• 1099 reporting of payments to independent contractors. – Annual• 3921 Reporting of Stock Options - AnnualSales Tax (similar to VAT) – Quarterly & Annual filing• Varies by state. CA= 7.5%-9.0% (currently)• General principle is that it is only applicable to physical goods (not services or digital content). This varies by state.Payroll Tax• Covered by payroll serviceMisc. Taxes• San Francisco Payroll tax. 1.5% if over $250,000 annually.• Use Tax: Sale tax for out of state purchases (including online) that would be subject to sales tax-filed annually.• Personal property tax on assets of company. ~ 1%11 Strategic Guidance, Hands-On Implementation
  • 12. 9. Sell Your Company for$1,000,000,000,000,000,000,000 When it comes to selling your business, there are important things you might not know…Liquidation preferences.• Distribution of proceeds based on terms of investment and may not be equal for all shareholders.• Important to understand and negotiate at time of investment.Selling your company to a public company for stock.• Public stock is often subject to restrictions as to when it can be freely sold.Deal structure and terms means some of what you receive maybe treated as Capital Gains and some as “Earned Income.”• Capital Gains tax rate for individuals is 15%.• “Earned income” tax rates that go up to 39%.12 Strategic Guidance, Hands-On Implementation
  • 13. 10. Repeat!“I’ve missed more than 9,000 shots in my career. I’ve lost almost 300 games. 26 times I’ve been trusted to take the game winning shot and missed. I’ve failed over and over and over again in my life and that is why I succeed.” - Michael Jordan, Basketball Legend & Entrepreneur13 Strategic Guidance, Hands-On Implementation
  • 14. Raising Capital in the USA Key requirement for U.S. investors is Intellectual Property ownership by U.S. legal entity. The “flip up.”Different Types of Investors: • Angels: $25,000 - $100,000. Focus is early stage. Proof of concept. • Early Stage Funds (super angels): $50,000 - $2,000,000. Proof of concept to early revenue. • Venture Capital Funds: $3,000,000 and above. Early revenue to scaling for growth. • Venture Debt: $2 million and above. Sustained revenue to scaling for growth. Moderate interest rate plus option to purchase small amount of equity. Availability dependent on quality and source of prior equity investors. • Bank Debt: Available to those with sustained revenue. Based on accounts receivable, recurring revenue stream, assets.14 Strategic Guidance, Hands-On Implementation
  • 15. Equity Compensation forFounders & EmployeesStock Options vs. Restricted Stock Awards (RSA)• Both can be subject to vesting and continued employment• RSA can provide tax advantages to holders Can be good for founders and early employees when value of stock is very low “Fair Value” of grant is compensation to employee and taxable Not practical for later stage of company when stock value has risen• Stock option rules complex from tax perspective Must be price at “fair value” to avoid taxable gain at time of grant ISO vs. non-ISO (NSO) rules and taxation are complicatedHow to establish “fair value” for company stock• Legally must be set by Board of Directors• Most companies get a 409a valuation to set “fair value”What is an 83(b) election?• Form sent to IRS within 30 days of receipt or purchase of stock to declare “value” of shares for tax purposes. Has complex effect on each person’s tax situation.15 Strategic Guidance, Hands-On Implementation
  • 16. Ravix Group provides seasoned consultingexpertise to outsource the finance/accountingand human resources functions for early-stage and middle market companies. Strategic Guidance, Hands-On Implementation
  • 17. Background• Principals have over 25 years of experience; Controllers, Accountants and HR Managers have an average of 10-15 years of experience.• 160 active clients; over 600 clients since inception in 2000.• Serves primarily technology companies, venture capital firms, nonprofit entities and consulting/services businesses located in Silicon Valley.17 Strategic Guidance, Hands-On Implementation
  • 18. Tom Pai - PrincipalOver 25 years of financial and operations experience in technology, media, and consumer productscompanies ranging in size from start-up to Fortune 100 global enterprises. Expertise •Strategic and operational planning •Venture capital financing •Mergers and acquisitions •Corporate restructuring •Chapter 11 reorganizationPrior to joining Ravix, Tom was the CFO and COO for several venture backed companies in onlinemedia, publishing and high technology. He was also the co-founder and principal in DART Partners, aninvestment firm specializing in underperforming mid-sized companies, and was a senior associate withBank of Americas venture capital group. Tom received his M.B.A. from Carnegie Mellon University andhis B.S. in Computer Engineering from University of California, Santa Barbara. Notable Clients18 Strategic Guidance, Hands-On Implementation
  • 19. How We HelpStrategic Advice and Counsel• Senior consultants partner with the CEO in CFO or VP-Human Resources capacity: * Strategic planning * Operations * Equity * Compensation * M&ATactical Execution• Provide Controllers, Accountants, HR Generalist, as needed to do: * Monthly Close * On-Boarding of Staff * Cash Management * Financial Reporting • Audits• Setup, implementation and maintenance of accounting & HR systems.19 Strategic Guidance, Hands-On Implementation
  • 20. Why Outsourcing To RavixMakes Sense“In a society of knowledge worker specialists, organizations will focus on the work their specialists do best. They will contract out (outsource) the rest.” -The Post-Capitalist Society, Peter F. Drucker • Receive expert advice and services at optimal cost. • Have an objective and unbiased professional handle sensitive matters. • The CEO is free to focus on the core business. • Ravix professionals receive ongoing training and are held to strict standards. • Clients have unique access to proprietary database for information on industry trends and management tools. • Ravix has an established reputation with venture capitalists as a trusted resource.20 Strategic Guidance, Hands-On Implementation
  • 21. Ravix Value Proposition Experienced professionals in 2 key areas of G&A: Finance & Human Resources + Knowledge database of shared information & tools + Ability to leverage established vendor relationships = Time & money savings for your company21 Strategic Guidance, Hands-On Implementation
  • 22. Finance Strategic & operations planning, Board participation & expectations budgeting & analysis management Oversight of fundraising & due Audit & bank relations diligence process Annual audit preparation Cash flow forecasting Systems implementation Setup books & records Revenue recognitions & commission Monthly close & financial reporting plans Foreign currency translation & Cost accounting & inventory control reconsolidations Policies & procedures Debt financing & asset lease Mergers & acquisitions relationships FAS 109 & FIN 48 tax accounting & Stock administration & footnote preparation capitalization tables FAS 124r valuations Contracts tracking & admin Risk management22 Strategic Guidance, Hands-On Implementation
  • 23. Human Resources Recruiting  HR policies & procedures Offer letters & employee file setup development Immigration/visas  Labor law compliance Payroll setup & processing  Employee reviews; performance management programs Benefit plans  Employee relations & negotiations 401(K) administration  RIF’s, terminations & exit interviews Audit & assessments  Workers’ compensation Employee handbook  Organization development Total compensation planning (cash & equity)  Training & development Stock option planning &  International comp/benefits administration  Cobra administration23 Strategic Guidance, Hands-On Implementation
  • 24. Stock Administration Reconciliation and clean-up of historical  Track stock option grants, exercises capitalization records and cancellations in Ravix Group’s Issuance of option grant notices upon proprietary capitalization tracking approval by the Board system Provide employees with exercisable  Interface with stock transfer agent option calculations (attorneys) to process option Issue stock option notices upon exercises & repurchases employee termination  Issuance of annual ISO Information Handle share repurchases upon Statement as required by IRS code termination (if early exercise)  Capitalization table updates and Track authorized plan shares and reconciliation with stock transfer shares available for grant agent to ensure up to date records in Budget share option requirements the event of a financing or M&A base on anticipated hires transaction Preparation for FAS 123r & warrant  Provide supporting data for annual issues audit24 Strategic Guidance, Hands-On Implementation
  • 25. Vendor Relationships• Banks • Commercial insurance• Audit & tax firms brokers• Attorneys – General & • Architects Immigration • Real Estate brokers• Leasing & debt sources • Building contractors• Benefits insurance brokers • IT vendors• Recruiters • Payroll services• Furniture & telephone • Workstation installers vendors • Moving/relocation vendors25 Strategic Guidance, Hands-On Implementation
  • 26. Industry Experience•Saas/Cloud based services •Consumer Goods & Devices•Non-profit •Venture Capital•Medical Devices •Software•Biotechnology & Life Sciences •Green Tech•Internet •Hardware•Services/Consulting •Communications & Networking•Mobile Apps •Semiconductor26 Strategic Guidance, Hands-On Implementation
  • 27. Pre-Funded CompaniesAs part of our marketing process wework with pre-funded companies to:• Assist in business plan modeling and preparation.• Introduction to potential investors through bank, legal and CPA relationships.27 Strategic Guidance, Hands-On Implementation
  • 28. ConclusionClients are looking for:• Strategic guidance and hands-on implementation by experienced experts at optimal cost.• G&A infrastructure to prepare for growth while staying focused on building their business.Ravix Group provides:• The knowledge and service to cost-effectively manage all G&A functions, allowing the Client to focus on the core areas of their business.28 Strategic Guidance, Hands-On Implementation
  • 29. Contact Information Ravix Group Inc. 226 Airport Parkway, Suite 400 San Jose, CA 95110 Telephone: (408) 216-0656 Fax: (408) 982-5446 Email: info@ravixgroup.com Website: www.ravixgroup.com Tom Pai, MBA Email: tpai@ravixgroup.com Mobile: (415) 710-7050 Skype: tomcp314 Follow us on Twitter! @RavixGroup29 Strategic Guidance, Hands-On Implementation