Published February 16th, 2006 edit replace rm!
Good quick overview from Jeff Cornwall about why you should be wary of venture funding:
None of the reasons are new, but they are all good and it is always good to see these reasons once every 6 months or so lest thee be tempted.
Published February 13th, 2006 edit replace rm!
As my readers know by now I really like the LLC there are however one or two valid reasons to stick with a S or C Corp if you are a US based company. Brad Feld has added another good reasons for why S-Corps may be preferable to LLC’s:
While there are several advantages of an LLC over an S-Corp (ability to issue different classes of securities, ease of set up, informality of operating agreements, lower state taxes, non-US investors), venture funds typically cannot (or don’t want to) invest in LLCs. When a VC invests in an LLC, they risk getting an income tax called UBTI (unrelated business tax income). This type of income is frowned upon by investors in venture funds partnerships and most funds have a provision in their fund agreements that they will use best efforts not to bring UBTI into the partnership. As a result, VC funds shy away from investing in LLCs.
It’s good to see this particular reason
for it. So if you are planning to have investors in the future it would be a good idea for an S Corp.
He mentions the ease of conversion from a S-Corp to a C-Corp. Which is also a valid point.
However to put it in geek terminology then generally speeking the LLC is the Ruby on Rails of legal entities. It is fast and agile. It allows you to focus on your business now and not on the huge enterprise you will be in 2 years time.
The corporation on the other hand was designed historically as an entity to protect outside investors. If you need outside investors from the get go thats fine. But if you are bootstrapping it is just like investing money in developing a huge J2EE application so you in the future can deploy it on a clustered Websphere server to keep your investors happy.
There are valid reasons to using J2EE, but many and most of them are based on outside pressures and not from your real business. If you look at the reasons for why LLC’s aren’t always a good idea you can see that virtually all of them are external compliance reasons. Such as Californias LLC Tax.
I still think that it is better in the short term to go for ease of implementation and this is exactly where the LLC counts. If you reach the point where you want investors, then go do the conversion from LLC to Inc and accept the cost at that point.
At early stages of a company the simplicity of an LLC keeps everyones focus on the business and not on future paper millions.
It’s the same thing as scaling your web service. Do you set up an expensive clustered environment while the only people who visit your site are yourselves, your mothers and a stray uncle somewhere. Is it really worth the time, effort and cost of setting up a super flexible “enterprise” when you’re not even sure you have a business yet?
As I have blogged about before there are some good reasons for when you should use C or S Corps, but unless you fit those reasons exactly I think it better to stick with LLC. One of these reasons it would appear is venture funding.
Published February 6th, 2006 edit replace rm!
I still think that an LLC is the best thing since sliced bread. However read up on Roth & Company’s blog on some of the specific reasons why LLC’s might not always be ideal .
These are mainly US centric reasons. But in particular it looks like there are specific problems with California based LLC’s. I am not sure how this would work if only one partner is in California and the rest elsewhere.
Published February 2nd, 2006 edit replace rm!
I am Danish (well nearly ) and am currently operating my business out of Denmark. I have also had businesses in a variety of other countries, so I think I have a pretty good perspective of what you need in Denmark both for Danes, but also for foreign residents here. There is very little good information in English about setting up business here, which is really embarrasing.
Published February 2nd, 2006 edit replace rm!
I have started businesses in more than a few places now and I was thinking it would be really cool to have an unofficial bloggers guide to the legalities of starting a business in various places around the world.
I think would be great if other entrepreneurial bloggers wrote a quick no nonsense guide to starting a business in their part of the world. This could be your country or in the US your state as well.
Seriously no matter where you are in the world, I think people would be really interested in finding out how things work in your country.
Once you have posted your guide on your blog comment below or do a trackback and I will link to it here in as an unofficial bloggers global startup guide directory.
These are the things that I seek out when I need to learn about starting a business somewhere. So this could be a basic outline. Fill out what you can and add anything including specifically your own experiences on stuff that you think is important.
My name is Pelle Braendgaard. Pronounce it like Pelé the footballer (no relation). CEO of Notabene where we are building FATF Crypto Travel Rule compliance software.
Most new articles by me are posted on our blog about Crypto markets, regulation and compliance