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1.2 company formation


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A structured view of how to incorporate with a particular focus on international organizations

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1.2 company formation

  1. 1. Company Formation This presentation is made possible by the support of the American People through the United States Agency for International Development (USAID). The contents of this presentation are the sole responsibility of Rick Rasmussen and do not necessarily reflect the views of USAID or the United States Government.
  2. 2. Business Formation Alternatives
  3. 3. Sustainable Income Lifestyle Startups Startup or family business Pass along to kids or moderate exit • Real estate • Law firms • Agriculture • Provide a needed product or service • Share the wealth
  4. 4. Search Sell Hot Idea Startup $2 to $50M Acquisition Buyable Startup Social Mobile Gaming Metrics - Find a hot market - Fill an immediate need - Make a quick exit - Move on to the next Raise some seed funds Hype and early traction
  5. 5. Scalable Startup Search Goal is to solve for: unknown customer and unknown features Exit Criteria - Business model found - Total Available Market > $500m - Can grow to >$100m/year - Exactly what Venture Capital is looking for
  6. 6. US Legal structure options • Sole Proprietorship • Limited Liability Corporation (LLC) • Limited Liability Partnership (LLP) • Forms of Incorporation – S-corp – C-corp
  7. 7. Sole Proprietor • One person acting on their own – Consulting, coding, recruiting, etc. – No legal distinction between the owner and the business. – The owner is legally accountable • Easy to hire, easy to fire
  8. 8. Why should you be a sole proprietor? • Can write off all work-related expenses – Travel – Meals – Lower marginal tax rates • Disadvanages – No health or benefits plan
  9. 9. Limited Liability Corporation Limited Liability Partnership • A partnership where all participants share in profits and losses • Each partner is liable for their own actions One partner is not responsible for liability of other partners • Very common for law firms, VCs and others • A disbursement of profits among partners as a percentage basis
  10. 10. Structuring a scalable business • Incorporation – Protects you – Defines investor and shareholder rights • Register with state – Set it up properly • Get a great attorney
  11. 11. Benefits of Incorporation • The corporate wall, the corporate veil – Personal asset protection – Against claims for loans, accounts payable and legal judgments • Flexible ownership – Ability to sell stock – Ability to transfer ownership (M&A) • Corporate taxation rates
  12. 12. Basic Incorporation Requirements • Corporate Name • Articles of Incorporation – Purpose – Principal place of business – Number and type of shares of stock. • Corporate Bylaws – When annual shareholder meetings will be held – Who can vote – Manner in which shareholders will be notified if there is need for an additional "special" meeting • All filed with the state of incorporation and a registration fee
  13. 13. US – Delaware Corporations • Considered to be the “normal” place to incorporate in the US • Allows one person to be the sole director, officer and stockholder • File key corporate decisions – Borrowing money or buying real estate – Corporate minutes and minute book • Must hold an annual meeting, can be done remotely
  14. 14. Essentials for Certificate of Incorporation and Bylaws • Non-conflicting name • Registered agent name and address within the state of Delaware • Purpose for which corporation is organized • Number and par value of initial shares of stock • Name and street address of organizing incorporator • Signature of incorporator • Location of Office • Meeting of Shareholders • Board of Directors • Officers • Shares of Stock • Dividends • Amendments • Waiver of Notice • Interested Directors • Indemnification and Advance of Expenses • Miscellaneous
  15. 15. International options • Where to incorporate? – Taxation consideration – IP and patent laws – Labor laws – Legal system and ability to enforce judgments – Speed and cost of incorporation – Ability to declare bankruptcy • Normal choices: – Home Country – Country where investment occurred (or desired investment) – Stay away from Tax havens (Cayman Islands, etc.)
  16. 16. Going Global – Step 1 • Properly establish your local corporate HQ within your own country • Grow to the point where you’re ready to do business overseas – Incorporate in every territory where you have employees – Treat these as subsidiaries
  17. 17. Going Global – Step 2 • Grow to the point where you’re doing business overseas • When to establish a US Corporation? – Optional: Have some revenues here – Required: You’re paying employees here
  18. 18. Business Development • Setting up an office often makes sense • Gain access to the resources of Silicon Valley for.. – Customers – Partnerships • Launch your company world wide as there are so many scouting posts from around the globe • Watch for: – Visa issues for those coming in from your country – Trust issues with local reps as they are often not “top notch”
  19. 19. Going Global – Step 3 • If you’re raising money anywhere – VC will want local control – Typically you will need to “Flip” corporate HQ to source of funding – Local HQ becomes subsidiary – No change in stock ownership for employees. • Where does IP reside? – Best protection – Best taxation situation Funding $$$$$