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Choice of Entity for Startups by Huan Le

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  • 1. Choice of EntityLLC or Corporation for the Tech StartupHuan Le 512.799.5049 | huan@quozlaw.com
  • 2. Choosing the Entity Additional Issues & Documents Considered Do it YourselfAgendaHuan Le 512.799.5049 | huan@quozlaw.com
  • 3. DiCentral Corporation General Counsel & CAO (2007 – present) BA – University of Southern California (1997) JD - University of Texas School of Law (2000) 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)Huan Le – where I’ve beenHuan Le 512.799.5049 | huan@quozlaw.com
  • 4. CHOOSING THE ENTITYThe hardest and Easiest Thing You’ll DoHuan Le 512.799.5049 | huan@quozlaw.com
  • 5. • No entity (sole proprietorship) • General Partnership Lots of Choices • Assumed Name (dba) • Limited Partnership • Limited Liability Partnership • Professional Corporation • Limited Liability Corporation • Corporation (S-Corp or C-Corp)Huan Le 512.799.5049 | huan@quozlaw.com
  • 6. Corporation versus LLCHuan Le 512.799.5049 | huan@quozlaw.com
  • 7. Corporation LLC• C-Corp or S-Corp • Can be taxed as• Owners vote for Board of partnership or corporation Directors, who choose • Member-managed or managers manager-managed• Articles of Incorporation, Bylaws, and shareholder • Operating Agreement is agreements are the controlling Document controlling Documents • Basically it’s a formal• Corporate Formalities partnership with limited need to be followed liability characteristicsGeneral CharacteristicsHuan Le 512.799.5049 | huan@quozlaw.com
  • 8. Corporation LLC• Multiple classes of stock • Very flexible ownership• Easy to add and subtract & capital structure (BUT more complex structures stockholders increase cost)• Stock Options • Pass-through taxation is• Easy to understand possible without ownership restrictions of an S-CorporationAdvantages of EachHuan Le 512.799.5049 | huan@quozlaw.com
  • 9. Corporation LLC• You intend to raise capital • You don’t intend to raise in 1-2 years capital from others soon• You want to issue equity • You’re the only owner to employees, but restrict and want simple the ability of the paperwork employees to be treated • You want to be taxed as a as partners partnership• You want to reinvest profits in growthWhich one to pickHuan Le 512.799.5049 | huan@quozlaw.com
  • 10. • 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 businessSome Case StudiesHuan Le 512.799.5049 | huan@quozlaw.com
  • 11. ADDITIONAL ISSUES &DOCUMENTS CONSIDEREDThings you may encounter as you buildHuan Le 512.799.5049 | huan@quozlaw.com
  • 12. • 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/QBConsider These ThingsHuan Le 512.799.5049 | huan@quozlaw.com
  • 13. • Preferred Stock• Buy-Sell Agreement• Convertible Note• Pre-money valuation• Series A, B and Early Investors• Lifestyle Business• Private Placement MemorandumSome TerminologyHuan Le 512.799.5049 | huan@quozlaw.com
  • 14. DO IT YOURSELF LAWResources for you to useHuan Le 512.799.5049 | huan@quozlaw.com
  • 15. Texas Sec. of State Third Parties• http://www.sos.state.tx.us/corp/ • http://www.legalzoom.com/ sosda/index.shtml • http://www.incorp.com/incorpo• Registered Agent ration-formation-• No par value registration.aspx• 1,000,000 shares • A law firm• Directors & officersResources for your filingHuan Le 512.799.5049 | huan@quozlaw.com
  • 16. Huan Le 512.799.5049 huan@quozlaw.comThank you.Huan Le 512.799.5049 | huan@quozlaw.com