Having been a startup lawyer, entrepreneur, and venture capitalist, I have been asked many of the following questions over the years from entrepreneurs when starting a business. Sometimes there isn’t an easy answer, and as lawyers often like to say, “It depends on the circumstances.” But here are my shorthand answers to the most frequently asked startup questions, which hopefully will be right 95% of the time.
1. Should I form my company as C corporation, an S corporation, an LLC, a partnership, or a sole proprietorship?
Start it as an S corporation, unless you have to issue both common stock and preferred stock; in that case start it as a C corporation. And an S corporation can easily be converted later into a C corporation. LLCs are popular but can get overly complicated. Partnerships and sole proprietorships are to be avoided because of the potential personal liability to the owners of the business.
2. Where should I incorporate my business?
The standard answer to this is Delaware because of its well-developed corporate law. However, my answer is that it should be the state where the business is located, as this will save you some fees and complexities. You can always reincorporate later in Delaware. ….