When you first form a corporation, the founders buy stock at a very low price. At some point in the future when you start adding on people, they can pay that same low price for the stock because that’s the value of the stock. Later on, however, when you first have an outside investor come in to purchase stock at a higher value, you reset the value of the company. Your new people who youRead More…
When you go to form a corporation, people talk about whether you should have a corporation or an LLC. If you’re going to have a corporation you need to file articles incorporation just like you would with an LLC. The difference is that on an LLC you have an operating agreement, which tells you how to run the company. This agreement is 20 or 30 pages long and it gives you an idea of whatRead More…
When we form a new entity or when a client comes to us with an LLC as their entity, we will talk about the benefits of a C corporation. There are many positives to a C corporation. The main bad thing is that you pay taxes on the income that the C Corporation earns at the corporate level. Then when you pay the income out to the individuals, they pay dividend taxes, so it’s doubleRead More…
We’re often asked what the value of a startup company is. Everyone in the big business world who is doing investing (the investment bankers and the venture capitalists), do rates of return, ROIs, cash flow analysis, and studies of how large the market is. They’re a whole series of things that are mathematical calculations, but that’s not really how the valuation is established for startups. The usual process starts with an investor comparing your businessRead More…
Filing for trademarks is a critical piece of the puzzle when you’re first starting your business. If you’re going to rely on branding to build your company and its value, you have to do a trademark search. You can do this on your own by going to the department of corporations trademark division online. However, doing this won’t tell you if there is someone who has a name similar to yours. If you don’t checkRead More…
When you raise money, the first thing you want to look for is strategic investors. Friends and family may be the ones who come to you first, but strategic investors have a lot more to offer than just putting money into your company. These are people who will help you with the management of your company. They’re people who will make introductions to the channels and distribution or other management members. They’re people who canRead More…
When deciding if you should file an S election for a corporation, you want to think about the tax consequences of making that election. An S election has a whole series of hoops you have to jump through. The reason for wanting an S election versus a C corporation is it only has one level of taxation. Most of our startups at the end of their fiscal year, if they have a profit, pay itRead More…
When you have a regular corporation and you don’t file an S election, the corporation is going to be taxed at approximately 9% in California and 34% in federal government. Of course, the rate at which you are taxed for state taxes differs per state. You get the credit for the state tax against your federal tax so you’re paying about a 40% tax rate. When you hand out dividends to your shareholders out ofRead More…
Choosing your accountant when you first start your company is a very important decision. This isn’t somebody who just helps you set up your books, it’s also somebody who helps you determine your cash flow projection, confirms that your projections are correct, helps you do some of the numbers associated with operating your company, helps you build your financial model, and may even have contacts that will help you build your capital resources when you’reRead More…
Some start-up companies logically break into separate sections, where they develop a product and want to go after different marketplaces. There are some very complex tax issues associated with having different divisions of the company and you have to make sure that you think through having those tax issues or you form separate companies related to your parent company. The issue of LLC versus corporation comes out. Corporations don’t have capital gains treatment, which isRead More…
