Formation of a Company
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Formation of a Company

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Explores the following: ...

Explores the following:
- When should I form a company?
- What entity should I use – LLC or corporation?
- Where should I incorporate – Delaware or New York?
- Should I use lawyers or do it myself?

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Formation of a Company Formation of a Company Presentation Transcript

  • WeWork Labs Seminar: Formation Jen Berrent Ian C. Wildgoose Brown October 1, 2013 Attorney Advertising
  • Formation Topics  When should I form a company?  What entity should I use – LLC or corporation?  Where should I incorporate – Delaware or New York?  Should I use lawyers or do it myself? © 2014 Wilmer Cutler Pickering Hale and Dorr LLP WilmerHale 2
  • When should I form a company? Benefits of Incorporation  Limitation of liability  Issuance of equity – Founders – Advisors and consultants  Ownership of intellectual property © 2014 Wilmer Cutler Pickering Hale and Dorr LLP WilmerHale 3
  • What entity should I use? Overview of Structures  Corporate Form – Partnership – Limited Liability Company – Corporation  Tax Treatment – “Pass-through” – No “pass-through” © 2014 Wilmer Cutler Pickering Hale and Dorr LLP WilmerHale 4
  • What entity should I use? Partnership  Tax: “Pass-through” tax treatment  Liability: Not all owners have limited liability  Flexibility: Flexible structuring  Owners: No limit on number or types of owners  Investors: Not an investor-favored form © 2014 Wilmer Cutler Pickering Hale and Dorr LLP WilmerHale 5
  • What entity should I use? Limited Liability Company  Tax: “Pass-through” tax treatment  Liability: All owners have limited liability  Flexibility: Flexible structuring  Owners: No limit on number or types of owners  Investors: Historically, not an investor-favored form © 2014 Wilmer Cutler Pickering Hale and Dorr LLP WilmerHale 6
  • What entity should I use? Subchapter S-Corporation  Tax: “Pass-through” tax treatment  Liability: All owners have limited liability  Flexibility: Extremely rigid structuring (only one class of equity)  Owners: Limit on number or types of owners  Investors: No practical way to take investors © 2014 Wilmer Cutler Pickering Hale and Dorr LLP WilmerHale 7
  • What entity should I use? Subchapter C-Corporation  Tax: No “pass-through” tax treatment  Liability: All owners have limited liability  Flexibility: Rigid structuring  Owners: No limit on number or types of owners  Investors: Investor-favored form © 2014 Wilmer Cutler Pickering Hale and Dorr LLP WilmerHale 8
  • LLC v. Corporation LLC C-Corporation  Best for small number of shareholders where flexibility in structuring is a key benefit  Good for companies with cash flow that will be distributed (e.g., investment funds, service companies)  Good for companies that do not care about retaining net operating  Best for companies looking to raise money and scale quickly  Good for compensating employees, consultants and advisors  Allows for the use of net operating losses  Must be a c-corporation to go public losses © 2014 Wilmer Cutler Pickering Hale and Dorr LLP WilmerHale 9
  • Where should I incorporate? Delaware  Best known corporate law – e.g., few New York lawyers know NY corporate law!  Most reasonable and flexible corporate rules – e.g., NY corporate law requires unanimous consent for stockholder actions not taken at a meeting  Better liability protections for stockholders – e.g., top 10 stockholders in NY corporations are liable for unpaid wages © 2014 Wilmer Cutler Pickering Hale and Dorr LLP WilmerHale 10
  • Should I use lawyers or do it myself? Use lawyers unless you are forming a single-member limited liability company  Need to be careful of many legal regimes – Corporate law – Tax law – Securities law  Lawyers are less expensive and more accessible than you think Wilmer Cutler Pickering Hale and Dorr LLP is a Delaware limited liability partnership. WilmerHale principal law offices: 60 State Street, Boston, Massachusetts 02109, +1 617 526 6000; 1875 Pennsylvania Avenue, NW, Washington, DC 20006, +1 202 663 6000. Our United Kingdom offices are operated under a separate Delaware limited liability partnership of solicitors and registered foreign lawyers authorized and regulated by the Solicitors Regulation Authority (SRA No. 287488). Our professional rules can be found at www.sra.org.uk/solicitors/code-of-conduct.page. A list of partners and their professional qualifications is available for inspection at our UK offices. In Beijing, we are registered to operate as a Foreign Law Firm Representative Office. This material is for general informational purposes only and does not represent our advice as to any particular set of facts; nor does it represent any undertaking to keep recipients advised of all legal developments. Prior results do not guarantee a similar outcome. © 2014 Wilmer Cutler Pickering Hale and Dorr LLP © 2014 Wilmer Cutler Pickering Hale and Dorr LLP WilmerHale 11