Forming Your Start-Up No LLC

One of the first steps to creating a successful company is choosing the legal structure that will best suit the needs of the business and its owners.

Generally, there are three key issues to consider when organizing a new business: 

  1. limited liability of owners
  2. ownership/management
  3. taxes

Corporations and Limited Liability Companies (LLCs) are the preferred entities for start-ups because of the limited liability protection they afford owners. 

LLCs are pass-through entities that are not subject to a separate level of tax and can provide founders with lots of flexibility when it comes to governance issues.  On the other hand, LLCs are often more complex, which means higher initial costs, and certain venture capital funds are hesitant to invest in LLCs because of tax considerations and the aforementioned complexity.

As a result, corporations are the most frequently utilized formation vehicle, particularly for companies seeking venture financing.  In certain circumstances, shareholders can elect to have their corporation treated as a Subchapter “S” corporation for tax purposes, which results in pass-through treatment like an LLC. 

For a more detailed discussion of the distinctions between LLCs, C corporations, and “S” corporations, see Tax Considerations for Start-Up Entities and Choosing a Legal Structure.

Location

Another consideration is where to organize your new business.  Regardless of whether you are organizing an LLC or a corporation, Delaware has the most developed body of law for business entities and is generally accepted by investors, counterparties and acquirers.  In fact, if you incorporate outside of Delaware, many potential institutional investors will require you to reincorporate in Delaware as a condition of their investment.

Our Document Driver® enables you to generate documents to form a Delaware corporation.  Before using Document Driver® you should consult your tax, accounting and/or legal advisors to determine the type of entity and jurisdiction of organization that best suits your needs.

In addition to the start-up documents generated from our Document Driver®, you will need to complete the steps outlined in Important Regulatory Matters and the C-Corp Checklist at right.