Choice of Entity for Startups by Huan Le

Choice of Entity
LLC or Corporation for the Tech Startup

Huan Le 512.799.5049 | huan@quozlaw.com

Choosing the Entity

Additional Issues &
Documents
Considered

Do it Yourself

Agenda

DiCentral Corporation
General Counsel & CAO (2007 – present)

BA – University of Southern California (1997)
JD - University of Texas School of Law (2000)
Medifr, Inc
CEO (2012 – present)

Healix, Inc.
Corporate Counsel (2003-2007)

Zeleskey, Cornelius, Hallmark Roper & Hicks
Associate, Corporate Section (2000-2007)

Yellow Thunder Media
Legal Advisor (2010 – present)

Caphin, Inc.
Advisor & Founder (2012 – present)

Huan Le – where I’ve been

CHOOSING THE ENTITY
The hardest and Easiest Thing You’ll Do


• No entity (sole proprietorship)
• General Partnership
Lots of Choices • Assumed Name (dba)

• Limited Partnership
• Limited Liability Partnership
• Professional Corporation
• Limited Liability Corporation
• Corporation (S-Corp or C-Corp)


Corporation
versus

LLC

Corporation LLC
• C-Corp or S-Corp • Can be taxed as
• Owners vote for Board of partnership or corporation
Directors, who choose • Member-managed or
managers manager-managed
• Articles of Incorporation,
Bylaws, and shareholder • Operating Agreement is
agreements are the controlling Document
controlling Documents • Basically it’s a formal
• Corporate Formalities partnership with limited
need to be followed liability characteristics

General Characteristics

Corporation LLC
• Multiple classes of stock • Very flexible ownership
• Easy to add and subtract & capital structure (BUT
more complex structures
stockholders increase cost)
• Stock Options • Pass-through taxation is
• Easy to understand possible without
ownership restrictions of
an S-Corporation

Advantages of Each

Corporation LLC
• You intend to raise capital • You don’t intend to raise
in 1-2 years capital from others soon
• You want to issue equity • You’re the only owner
to employees, but restrict and want simple
the ability of the paperwork
employees to be treated • You want to be taxed as a
as partners partnership
• You want to reinvest
profits in growth

Which one to pick

• Side business for a
programmer
• Two friends who
want to do something
fun and interesting
• 2 friends, wanting to
launch a new game
app and bring in a
developer.
• One friend, one
investor, looking to
launch a media
company. No
additional investors
• Friends trying to
raise money for a
new Biotech business

Some Case Studies

ADDITIONAL ISSUES &
DOCUMENTS CONSIDERED
Things you may encounter as you build


• The double-taxation
bogey-man
• TX, DE or NV
• What if my partners and I
disagree?
• What if my partner dies
or gets a divorce?
• Do I really need to raise
money?
• Insurance
• Accountant/QB

Consider These Things

• Preferred Stock
• Buy-Sell
Agreement
• Convertible Note
• Pre-money
valuation
• Series A, B and
Early Investors
• Lifestyle Business
• Private Placement
Memorandum

Some Terminology

DO IT YOURSELF LAW
Resources for you to use


Texas Sec. of State Third Parties
• http://www.sos.state.tx.us/corp/ • http://www.legalzoom.com/
sosda/index.shtml • http://www.incorp.com/incorpo
• Registered Agent ration-formation-
• No par value registration.aspx
• 1,000,000 shares • A law firm
• Directors & officers

Resources for your filing

Huan Le
512.799.5049
huan@quozlaw.com

Thank you.

Choice of Entity for Startups by Huan Le

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