Seven Tips on Forming Your New Startup From Silicon Valley Lawyer Louis Lehot

When starting your own business, it takes more than just one great idea. The way in which you choose to form your company can be critical to its future success.rnIf you’re looking to structure your new business and you’re choosing between a sole proprietorship, S-Corp, C-Corp, or LLC, there are several considerations. And every option comes with its own positive and negative aspects that must be factored into the final decision-making process.rnFirst, let’s take a look at key factors that should be examined when forming your company and how they impact the choice of structure. The price of registration will be similar no matter which option you choose, but each structure has a different cost to form and maintain. A sole proprietorship is the cheapest and easiest to form as well as to maintain. So, this is not surprisingly the most popular choice. Meanwhile, a corporation will cost more to form and operate, but this option offers a relatively low startup cost. And an LLC is the more expensive option to operate due to the cost of compliance. Although startup and operation costs are important, they should not be the only factor driving the decision.rnWhen choosing a company structure, legal liability is one of the most important issues to consider. Your personal liability depends on the structure you choose, so you need to evaluate the risk associated with the business and the level of protection each structure provides. For example, a sole proprietorship does not offer protection against liability, so if the risk is determined to be high, this is not the right option. An S-Corp or C-Corp provides a lot more protection for shareholders, and an LLC offers the most liability protection for owners.rnTax implications of a company structure can also be complex, and it’s important to have a throrough understanding of each. A sole proprietorship isn’t a separate legal entity from the owner, which means the income earned is passed right to the owner’s personal income tax return without a separate tax return. Corporations and LLCs are passed through entities, so business income is passed on to the shareholders, and removes the need for separate business income tax. As it relates to a C-Corp, there are taxes at the entity and shareholder level, but for a S-Corp, there are typically no federal income taxes at the entity level. And for S-Corps and LLCs, income is taxed at the shareholder or member level regardless of cash distributions. When it comes to an S-Corp, C-Corp, or LLC — all of these options allow companies to offer employee equity awards, but equity awards must be structured differently for an LLC and can be complicated. An S-Corp is restricted to issuance of one class of stock as they cannot issue preferred stock to shareholders, and are limited in the number and type of shareholders. S-Corps can’t have more than 100 shareholders and have to be individuals, estates, or trusts. An LLC provides more flexibility regarding number of members, and can issue several classes of stock. This option can also be harder to find investors for because of the tax and regulatory issues associated with the structure.rnMaking this kind of decision on your business structure is a highly complex one. So, legal and tax guidance along the way is essential to making the right decision for you and your company. Connect with Louis Lehot: Website: Louis LehotrnLinkedIn: Louis LehotrnFacebook: Louis LehotrnTwitter: Louis LehotrnInstagram: Louis LehotrnYouTube: Louis LehotrnVimeo: Louis LehotrnPinterest: Louis LehotrnCrunchbase: Louis LehotrnMuckrack: Louis LehotrnAnchor.fm: Louis LehotrnIdeamensch: Louis LehotrnChief Executive: Louis LehotrnData Driven Investor: Louis LehotrnGood Men Project: Louis LehotrnSpeaker Hub: Louis Lehot Read the Articles written by Louis Lehot:rnLouis Lehot: What to expect for seed and pre-seed stage financing in 2021rnLouis Lehot: A Brief Legal Guide To Buying And Selling Shares Of Private Company StockrnLouis Lehot: The IPO Markets Are Changing, And So Is The Lock-up AgreementrnLouis Lehot: What are SPACs, and how they are different from IPOs?rnLouis Lehot: L2 Counsel Represents AgTech Leader FluroSat In Dagan AcquisitionrnLouis Lehot: Considering Selling Your Company? Be Clear on Your Fiduciary DutiesrnLouis Lehot: Incentivizing With Stock Options: What Your Startup Needs To Know About ISOs, NSOs And Other Parts Of The Alphabet SouprnLouis Lehot: Ready To Sell Your Startup In 2021?rnLouis Lehot: The State Of The Acqui-Hire In 2021: The Good, The Bad, The Why And What’s NextrnLouis Lehot: Leaving Your Job? Don’t Forget Your Stock Options…rnLouis Lehot: A Short Primer for Startups on Local Labor and Employment Law CompliancernLouis Lehot: How To Clean Up A Corporate MessrnLouis Lehot: Calculating And Paying Delaware Franchise Taxes — Startups Need Not Panic