For entrepreneurs who want to set up a company and avoid double taxation (i.e., taxation of amounts earned by the company and then taxation of the owners when they receive payments from the company), the choice often comes down to using an S-corporation or LLC (limited liability company). What if the entity could be both?
Security breaches have become all too common, and cyberattacks are not limited to the assaults on big companies that are reported in the news. With the global economic cost of cybercrime totaling more than $400 billion per year, cybersecurity has become a priority for executives and board members. Companies of all sizes across all industries should be thinking about how to better safeguard their data.
As we discussed in our inaugural posts in this series, after management, the most valuable asset for most startups can be their intellectual property (IP). And as such, it is important for a startup to own its intellectual property. That sounds simple enough, right? Wrong!
In the early stages of a startup, individuals typically collaborate informally to develop their ideas and a business plan. A company may not be formed yet. There may be no formal agreements among the individuals. Additionally, some of the collaborators may be employed by other companies while waiting for the startup to launch. As part of employment with such companies, certain collaborators may be obligated to assign his or her contributions intended for the startup to their current employer. Without any formal agreements or even a formal entity to own IP, any IP generated or derived from an informal collaboration may be owned by individuals personally or worse yet, depending on the circumstances, by another company. Every potential investor or acquirer will perform due diligence to make sure that all of the company’s IP is owned by the company. From the outset, every startup needs to consider these ownership issues which can cause barriers to funding or acquisition or otherwise limit valuation in the future. Continue reading this entry
Founders are often focused on maintaining at least 51% ownership of their companies. With 51%, they will be able to control the Company, and their destiny. At least that’s what they thought. In reality, the 51% control premium is often contracted away in the world of preferred stock venture financings.
In a typical venture financing, venture capital (VC) investors may end up with 25% of the Company, leaving 75% in the hands of the founders. However, the VCs will require that the Company enter into various contracts with them as a condition to the financing that shift control away from the founders and towards to the investors.
Over the course of our “Why Start-Ups Use Convertible Debt” series, we’ve discussed the two common paths start-up companies take to structure a financing. In Part I, we discussed common stock financing and in Part II, we discussed a convertible debt financing. In Part III, we will review the main principles start-up companies must remember when deciding to complete a convertible debt financing.