Startup founders often times just want to focus on building a product, but there are advantages to setting up a corporate structure early on. In this lecture Poornima Vijayashanker covers the various types of corporate structures that exist, and other things to consider such as equity and board of directors.
You can watch the lecture here: http://youtu.be/S7Ov-rsgTdk
Startup founders often times just want to focus on building a product, but there are advantages to setting up a corporate structure early on. In this lecture Poornima Vijayashanker covers the various types of corporate structures that exist, and other things to consider such as equity and board of directors.
You can watch the lecture here: http://youtu.be/S7Ov-rsgTdk
For innovative businesses it is vital to take advantage of support that can enable a business to grow. This includes tax reliefs aimed at the different stages in a business’s life cycle and the various avenues that are available for raising finance to take the business to the next level of its development. In this session we will look at the early stage of R&D claims and funding opportunities, through to share schemes, EIS and international expansion and the correlation with raising finance, both equity and debt, culminating in the final stage of the business being sold, what this can look like and how to be prepared.
Buy-sell agreements are usually part of a succession plan put in place to protect the financial interests of the owners of closely held companies and their heirs and to protect the company’s stability in case of a major event. Funding buy – sell agreements is frequently accomplished using insurance policies under (1) a cross purchase agreement, or (2) a stock redemption agreement.
Cross purchase agreement. Each owner of the company takes out, and is beneficiary of, an insurance policy on each of the other owners. In the event of an owner’s death, the other owners use the insurance proceeds to buy out the decedent’s ownership share in the company from the decedent’s beneficiaries.
www.sba.gov. The U.S. Small Business Administration (SBA) provides programs for businesses in the areas of technical assistance, training and counseling, financial assistance, assistance with government contracting, disaster assistance recovery, advocacy laws and regulations, civil rights compliance, and special interests, such as women, veterans, Native Americans, and young entrepreneurs. The website provides links to numerous information resources.
www.score.org. The Service Corps of Retired Executives (SCORE) is dedicated to helping small businesses get off the ground, grow and achieve their goals. SCORE provides volunteer mentors, free confidential business counseling, free business tools, and inexpensive or free business workshops.
This webinar is critical for entrepreneurs who will be raising a preferred round in the near future. This webinar is designed to teach you what to expect when your company sells preferred stock in a venture round.
During this webinar, veteran Silicon Valley venture capital attorney Jason Putnam Gordon will cover the following topics:
· What venture capitalists are looking for when they invest in a company
· What makes a company a potential investment for a venture capital fund
· Pre-round issues
· What makes a good investor and how to find them
· How to negotiate a term sheet
· The deal documentation
· The diligence process
· Closing issues
· Post-closing issues
· Common pitfalls when raising venture capital
· And much, much more
Founded in 2008, Crown Venture Investment Fund is a private pooled investment vehicle that utilizes a value-based investment strategy to pursue its long-term objective of above-average returns.
Find out what crowdfunding is in Australia and how to make your SME more attractive to investors. Get your business investor ready and get the bank off your back!
Founder Equity Issues: Structuring Founder Relationships, Stockholder Agreeme...The Capital Network
Paul Sweeney - Founder Equity 2013
As you set up your company and add co-founders, investors and staff it’s important that your stockholder agreements are structured correctly. This lunch will cover invaluable information on structuring founder equity to avoid the pitfalls that can harm a company’s ability to attract investment capital.
Working lunch programs are hosted by The Capital Network’s professional service sponsors in New England to provide tactical level information designed to accelerate entrepreneurial development and fundraising processes for Boston-area startups.
www.thecapitalnetwork.org
For innovative businesses it is vital to take advantage of support that can enable a business to grow. This includes tax reliefs aimed at the different stages in a business’s life cycle and the various avenues that are available for raising finance to take the business to the next level of its development. In this session we will look at the early stage of R&D claims and funding opportunities, through to share schemes, EIS and international expansion and the correlation with raising finance, both equity and debt, culminating in the final stage of the business being sold, what this can look like and how to be prepared.
Buy-sell agreements are usually part of a succession plan put in place to protect the financial interests of the owners of closely held companies and their heirs and to protect the company’s stability in case of a major event. Funding buy – sell agreements is frequently accomplished using insurance policies under (1) a cross purchase agreement, or (2) a stock redemption agreement.
Cross purchase agreement. Each owner of the company takes out, and is beneficiary of, an insurance policy on each of the other owners. In the event of an owner’s death, the other owners use the insurance proceeds to buy out the decedent’s ownership share in the company from the decedent’s beneficiaries.
www.sba.gov. The U.S. Small Business Administration (SBA) provides programs for businesses in the areas of technical assistance, training and counseling, financial assistance, assistance with government contracting, disaster assistance recovery, advocacy laws and regulations, civil rights compliance, and special interests, such as women, veterans, Native Americans, and young entrepreneurs. The website provides links to numerous information resources.
www.score.org. The Service Corps of Retired Executives (SCORE) is dedicated to helping small businesses get off the ground, grow and achieve their goals. SCORE provides volunteer mentors, free confidential business counseling, free business tools, and inexpensive or free business workshops.
This webinar is critical for entrepreneurs who will be raising a preferred round in the near future. This webinar is designed to teach you what to expect when your company sells preferred stock in a venture round.
During this webinar, veteran Silicon Valley venture capital attorney Jason Putnam Gordon will cover the following topics:
· What venture capitalists are looking for when they invest in a company
· What makes a company a potential investment for a venture capital fund
· Pre-round issues
· What makes a good investor and how to find them
· How to negotiate a term sheet
· The deal documentation
· The diligence process
· Closing issues
· Post-closing issues
· Common pitfalls when raising venture capital
· And much, much more
Founded in 2008, Crown Venture Investment Fund is a private pooled investment vehicle that utilizes a value-based investment strategy to pursue its long-term objective of above-average returns.
Find out what crowdfunding is in Australia and how to make your SME more attractive to investors. Get your business investor ready and get the bank off your back!
Founder Equity Issues: Structuring Founder Relationships, Stockholder Agreeme...The Capital Network
Paul Sweeney - Founder Equity 2013
As you set up your company and add co-founders, investors and staff it’s important that your stockholder agreements are structured correctly. This lunch will cover invaluable information on structuring founder equity to avoid the pitfalls that can harm a company’s ability to attract investment capital.
Working lunch programs are hosted by The Capital Network’s professional service sponsors in New England to provide tactical level information designed to accelerate entrepreneurial development and fundraising processes for Boston-area startups.
www.thecapitalnetwork.org
Entrepreneurs will face a huge number of decisions as they move from concept to commercialization. One of the
first major decisions is what type of legal entity to form in order to move their great ideas forward. Why does it
matter? Because different entities have very different rules regarding limited liability, management and control
flexibility, capital structure, tax efficiency and eligible investors.
27C H A P T E R2THE FINANCIAL ENVIRONMENTLearning .docxvickeryr87
27
C H A P T E R
2THE FINANCIAL ENVIRONMENT
Learning Objectives
After studying this chapter, readers will be able to
• Describe the alternative forms of business organization and ownership.
• Explain why taxes are important to healthcare finance.
• Briefly describe the third-party-payer system.
• Explain the different types of payment methods used by payers.
• Describe the incentives created by the different payment methods and
their impact on provider risk.
• Explain the importance and types of medical coding.
• Briefly describe the purpose and key features of healthcare reform.
Introduction
Fortunately, most of the basic concepts of healthcare finance are independent of
the specific industry (for example, hospital versus long-term care versus medi-
cal practice) and organizational setting. However, some aspects of healthcare
finance are influenced by industry setting, while the unique ownership structure
of healthcare providers influences specific applications of finance concepts. In
this chapter, some background material is presented that creates the context in
which finance is practiced in health services organizations.
The fact that many healthcare businesses are organized as not-for-
profit corporations has a significant impact on the practice of finance. Thus,
the chapter begins with a discussion of alternative forms of business organiza-
tion and ownership. Because ownership affects taxes, tax laws also are briefly
introduced. The chapter continues with a discussion of third-party payers, the
reimbursement methods that they use, and the implications of alternative re-
imbursement methods for provider behavior. The final sections cover medical
coding and healthcare reform.
Alternative Forms of Business Organization
Throughout this book, the focus is on business finance—that is, the practice of
accounting and financial management within business organizations. There are
three primary forms of business organization: proprietorship, partnership, and
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H e a l t h c a r e F i n a n c e28
corporation. In addition, there are several hybrid forms. Because most health
services managers work for corporations and because not-for-profit businesses
are organized as corporations, this form of organization is emphasized. How-
ever, many individual medical practices are organized as proprietorships, and
partnerships and hybrid forms are common in group practices and joint ven-
tures,.
The Very Basics: Forming the Business (Series: The Start-Up/Forming the Busin...Financial Poise
So, you are an entrepreneur and want to start your own business (or you are an attorney, accountant, or other professional advisor working with one). One of the first decisions required is to choose a legal structure for the business and the jurisdiction of entity organization. What factors should be taken into consideration prior to selecting a legal structure and jurisdiction? Does a sole proprietorship, partnership, limited liability company or corporation (C- or S-corp) make the most sense? This webinar focuses on business formation and the pros and cons to the different legal structures, and includes tips on how to keep one’s personal assets safe from the claims of future creditors of the business.
To view the accompanying webinar, go to: https://www.financialpoise.com/financial-poise-webinars/the-very-basics-forming-the-business-2021/
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5. Sole Proprietorship
An unincorporated business owned and run by one individual with no
distinction between the business and the owner
1
5
• A one-person business that is not registered with the state as a corporation
or a limited liability company (LLC)
• The simplest and most common structure chosen to start a business
• A Default Status: If you are the only owner
• No formal action is required to form a sole proprietorship.
• Taxation
• The business itself is not taxed separately: you and your business are one
and the same; the sole proprietorship income is your income
KEVIN XU/ OLIVIA CHUSTARTUP@BERKELEYLAW
6. 16
Heavy burden
Hard to raise money
Easy and inexpensive to form
Unlimited personal liability
Complete control
Sole Proprietorship: Pros & Cons
Simplified Taxation
KEVIN XU/ OLIVIA CHUSTARTUP@BERKELEYLAW
PROS
CONS
7. Partnership
A partnership arises whenever two or more people co-own a business and
share in the profits and losses of the business.
2
7
• Joint ownership with shared management
• A Default Status: If you co-engage in a business or received non-payment profits
(UPA 1997 §§ 202 (a),202 (c) (3))
• In the partnership setting, the traditional judicial response is to demand that
partners deal with one another as fiduciaries in all matters affecting the
partnership. (UPA 1997 § §103, 403, 404)
• Duty of Loyalty (UPA §404(b))
• A partner’s duty of loyalty to the partnership and the other partners is limited
to the following: 1) accounts related to the partnership; 2) deals related to or
adverse the interest of the partnership; 3) competitions against the partnership
KEVIN XU/ OLIVIA CHUSTARTUP@BERKELEYLAW
8. 8
General Partnership
A general partnership is an
arrangement by which partners
conducting a business jointly have
unlimited liability. Every partner to a
general partnership can actively
participate in management and may
be as responsible as other general
partners for loss from lack of care.
Limited Partnerships
Similar to general partnership, but
limited partnerships must have at
least one general partner and at
least one limited partner. Limited
partners do not receive dividends,
but enjoy direct access to the flow of
income and expenses.
Limited Liability Partnerships
A partnership in which some or all
partners have limited liability. One
partner is not responsible or liable
for another partner's misconduct.
Most LLPs are created and managed
by a group of professionals. LLPs
tend to rely heavily on reputation.
3 Types of Partnership
KEVIN XU/ OLIVIA CHUSTARTUP@BERKELEYLAW
9. 19
Shared Profits
Decisions are shared
Easy and Inexpensive to form
Joint and Individual Liability
Partnership Incentives for Employees
Partnership: Pros & Cons
Shared risk and expense
KEVIN XU/ OLIVIA CHUSTARTUP@BERKELEYLAW
*A friendship may not survive a partnership.
PROS
CONS
10. Limited Liability Companies (LLC)
A limited liability company (LLC) is a mix of partnerships and corporation. An
LLC is an unincorporated association that protects the liability of a company.
3
10
• Flexible management structure: More like a contract
• No ownership restrictions and members of an LLC may be non-US citizens
• Easy and less-costly to form
• Taxation: Flow-Through Taxation
KEVIN XU/ OLIVIA CHUSTARTUP@BERKELEYLAW
11. 111
Difficult to raise capital
Self-Employment Taxes
Members are protected from
personal liability for business
Joint and Individual Liability
Less registration paperwork, and cost less than S-Corp
LLC: Pros & Cons
Fewer restrictions on profit
KEVIN XU/ OLIVIA CHUSTARTUP@BERKELEYLAW
*In many states, when a member leaves an LLC,
the business is dissolved and the members must
fulfill all remaining legal and business obligations
to close the business. The remaining members can
decide if they want to start a new LLC or part ways.
However, you can include provisions in your
operating agreement to prolong the life of the
LLC if a member decides to leave the business.
PROS
CONS
12. Corporation
A partnership arises whenever two or more people co-own a business and
share in the profits and losses of the business.
4
12
• Joint ownership with shared management
• A Default Status: If you co-engage in a business or received non-payment profits
(UPA 1997 §§ 202 (a),202 (c) (3))
• In the partnership setting, the traditional judicial response is to demand that
partners deal with one another as fiduciaries in all matters affecting the
partnership. (UPA 1997 § §103, 403, 404)
• Duty of Loyalty (UPA §404(b))
• A partner’s duty of loyalty to the partnership and the other partners is limited
to the following: 1) accounts related to the partnership; 2) deals related to or
adverse the interest of the partnership; 3) competitions against the partnership
KEVIN XU/ OLIVIA CHUSTARTUP@BERKELEYLAW
13. 13
C-Corp
The standard corporation. Multiple
classes of stock available to C-Corp..
Non-US citizens or and non-
residents are permitted to be
shareholders / founders of a C-
Corp. C-Corps are the best choice
for large companies that are or plan
to be publicly traded.
S-Corp
The main difference between a C
corporation and an S corporation is
the taxation structure. S
corporations only pay one level of
taxation: at the shareholder level.
Limited ownership to 100
shareholders. Shareholders can only
be US citizens. (No VC fund.)
B-Corp
B-Corp is a for-profit entity includes
positive impact on society, workers,
the community and the environment
in addition to profit
3 Types of Corporation
KEVIN XU/ OLIVIA CHUSTARTUP@BERKELEYLAW
14. 114
Bad for businesses that want to hold
appreciating assets, such as real estate
Double-Tax
unlimited amount of shareholders
Mostly costly and most difficult to form
in terms of regulations and paperwork
Easy to get funded
C-Corp: Pros & Cons
KEVIN XU/ OLIVIA CHUSTARTUP@BERKELEYLAW
Shareholders can be non-residents
PROS
CONS
15. 115
Limited to one class of stock only
Pass-Through Taxation
Maximum of 100 shareholders,
all of whom must be U.S.
residents or resident aliens
Straightforward transfer of ownership
S-Corp: Pros & Cons
KEVIN XU/ OLIVIA CHUSTARTUP@BERKELEYLAW
Protect the personal assets of its shareholders.
Owner/employees holding 2% or
more of the company’s shares
cannot received tax-free benefits.
PROS
CONS
17. 17
Ease of conversion and mergers
Transformation of the entity might be a great strategy!
Equity incentives and financings
How the company get funded?
The right entity will even help you raise more capital
Tax
Employment Tax/ Pass Through Taxation
Governance
Who is in charge of the entity? Is the person eligible? Who will
be liable for business obligation?
4 Consideration Factors
KEVIN XU/ OLIVIA CHUSTARTUP@BERKELEYLAW
19. 19
Entity Structure
KEVIN XU/ OLIVIA CHUSTARTUP@BERKELEYLAW
PARTNERS
SHAREHOLDERS
MANAGERS DIRECTORS
MANAGERS
MEMBERS
LLC Corporation
Board of Directors + Shareholders
(State Corporation Code )
Partnerships
INDIVIDUAL
Sole Proprietorship
Single Entrepreneur
Members/Managers
(State Limited Liability Company Act)
Several Entrepreneurs/Sharing Power
(Uniform Partnership Act)
20. 20
Nationality Eligibility: S-Corp
Can a Foreigner, Non-citizen, Resident Alien Be an S Corp Shareholder?
• S-Corp is not eligible to “have a nonresident alien as a shareholder”
(IRC § 1361(b)(1)(C))
• Foreigners who are “Resident Aliens”
• Green Card (Immigration Form I-551)
• Substantial Presence Test
• Physically Substantially Presence in US (> 183 Days / year)
• You have to continue to meet the test until you really acquire a green card
Yes. However, an S-Corp generally cannot be owned by a non-US Citizen.
KEVIN XU/ OLIVIA CHUSTARTUP@BERKELEYLAW
*This is tricky. Not highly recommended.
22. 22
Tax Structure
KEVIN XU/ OLIVIA CHUSTARTUP@BERKELEYLAW
Sole Proprietorship, Partnerships, LLC, S-Corp
Pass-Through
The income of the entity is treated as
the income of the investors or
owners. Only taxed one time.
*Entity Income = Gross Income-Expenses
PARTNER 1
ENTITY INCOME
PARTNER 2 PARTNER 3 PARTNER 1
ENTITY INCOME
PARTNER 2 PARTNER 3
Double Taxation
Taxed twice.
= Tax
C-Corp
23. 23
C-Corp and the Double Taxation
Is C-Corp really a bad option because of the taxation?
• The C-Corp structure can possibly help you minimized the tax
• The IRS taxes different levels of profit at different rates
• Double tax issues usually only matter when the startup makes lots of money
• C-Corp can issue multiple types of stocks, which can possibly reduce tax
• Shareholders of C corps can serve as salaried employees
• The company can pay employees enough so that no taxable profits remain at
the end of the fiscal year
• The only entity form that can deduct contribution to eligible charities as a
business expense.
It depends. Generally, you might be taxed more, but not always.
KEVIN XU/ OLIVIA CHUSTARTUP@BERKELEYLAW
* https://www.irs.gov/pub/irs-pdf/i1120.pdf
25. 25
Stock Option and Fund Raising
What kind of stock can be issued?
• LLC or LLP cannot issues stock
• C-Corps and S-Corps can issues employee stock options and are eligible to issue
“incentive stock options” with special tax treatment
• C-Corps can issue “qualified small business stock.” S corporations cannot issue
qualified small business stock.
• You must be a C-Corp to get fund from Venture Capital (VC)
• C-Corps can engage in traditional VC-style preferred stock financings while an
LLC and S corporation cannot financings
• You don’t need to be a C-Corp to get fund from angel investors, but
professional investors prefer C-Corp
Stocks are used to raise funds or build the capital through the sale of shares.
KEVIN XU/ OLIVIA CHUSTARTUP@BERKELEYLAW
*In reality, C-Corps are more easy to get funded
26. EASE OF
CONVERSION & MERGERS
4
26
KEVIN XU/ OLIVIA CHUSTARTUP@BERKELEYLAW
27. 27
Entity Converting
You probably have to convert to the entity from one to another as your business grow
• Converting an S-Corp to a C-Corp: Simple
• C-Corp to an LLC or a C-Corp into an LLC is much more complex.
• Converting an LLC to a C-Corp
• Statutory conversion: Simple
• Filing a few forms with the secretary of state’s office
• Statutory merger: More Complicated
• Create your new corporation as a separate business entity before transfers
your LLC’s assets and liabilities to the new corporation automatically
• Non-statutory conversion: Most Complicated
KEVIN XU/ OLIVIA CHUSTARTUP@BERKELEYLAW
*In reality, C-Corps are more easy to get funded
29. 29
Less Expensive To Relocate The Corporation
If you incorporate in California and later move the corporation to a
different state, you still have to pay the $800 annual franchise tax each
year, but if you incorporate in Delaware and later move the annual
franchise of your “home state” where you initially incorporated could be
as low as $125.
Meet Angel, VC, and Investment Banker Preference
Angel investors and venture capitalists tend to prefer to invest in
companies incorporated as a C-Corp in Delaware. Many investment
bankers insist on a company being incorporated in Delaware before they
take it public.
Corporate Law Expertise of Delaware Court of Chancery
No corporation wants to be involved in litigation, but you would be glad
the dispute is resolved by a knowledgeable judge who is sophisticated in
resolving corporate law matters. Also, the extensive precedent of
Delaware corporate case increased predictability of the likely judicial
resolution of a business law dispute.
3 Reasons Why Delaware?
KEVIN XU/ OLIVIA CHUSTARTUP@BERKELEYLAW
30. 30
Procedure of Forming an Entity in Delaware
• The fax number is 302-739-3812
The mailing address is Division of Corporations -John G. Townsend Building - 401 Federal Street - Suite 4 - Dover, DE 19901.
• All corporations incorporated in the State of Delaware are required to file an Annual Report and to pay a franchise tax.
• The Delaware Division of Corporations allows for the reservation of an entity name. This is not a requirement in order to form your
entity but will guarantee that your name is held for you for a period of 120 days. https://icis.corp.delaware.gov/Ecorp/EntitySearch/
01 02 03
Obtain a Registered Agent
Delaware law requires that every
business entity have and maintain a
Registered Agent in Delaware
Certificate for Filing
You may download a PDF fillable
cover sheet on our web site. at
http://corp.delaware.gov/
Submit the Certificate
You may submit the certificate either
by mail or fax. All filing fees must be
paid upon submission of your
request.
Other Information
KEVIN XU/ OLIVIA CHUSTARTUP@BERKELEYLAW
31. 31
Status of Good Standing
You probably have to convert to the entity from one to another as your business grow
• Status of Good Standing
• Required Compliance: Appointing a registered agent, making timely filings of
required forms, and paying fees and/or franchise taxes.
• Business with “good standing”: keep all the rights and privileges of doing
business as a statutory entity.
• Typically, a Certificate of Good Standing is required in order to open a corporate
bank account, purchase or sell real estate, obtain a loan, obtain a Certificate of
Authority to operate in another state, or merge with another company.
• You may order a Certificate of Status or Certificate of Good Standing at the time
of filing your new entity by indicating this request in the comment section of the
Document Filing Sheet.
• Loss of good standing can damage your business
KEVIN XU/ OLIVIA CHUSTARTUP@BERKELEYLAW
33. 33
Conclusion
While the choice of entity is really a case-by-case decision.
Generally, we suggest a startup starts from a “Delaware LLC,” which is the easiest and least costly to form. At the same time,
it generally with less tax. If all of the founding partners are U.S. residents or resident aliens, you may consider to start with a
S-Corp. You can enjoy pass-through taxation. Also, the investors generally prefer S-Corp over LLC.The fact that professional
investors want you to have a C-Corp does not mean that you need to form as a C-Corp initially. You may convert from the
LLC or S-Corp to C-Corp when you are about to receive Venture Capitals. (Both LLC and S-Corp converting into C-Corp are
not that hard.)
KEVIN XU/ OLIVIA CHUSTARTUP@BERKELEYLAW
PARTNERSHIPS
Stage 1
LLC
SOLE
PROPRIETORSHIP
S-CORP
C-CORP
C-CORP
Stage 2 Stage 3