Hello Startup Founders! Key Legal Tips for Incorporating Your New Business
If you're starting a new business, I know you're filled with exciting ideas and dreams for the future. But before you dive in, it's important to take care of some key legal steps for incorporating your startup.
The business attorney, Jeffery Wheat, at Wheat Legal PLLC has helped hundreds of entrepreneurs just like you form their companies. We want you to make smart choices now that will set you up for success down the road. So we've put together this handy guide to walk you through the main decisions you'll need to make. Don't worry - we'll explain things in simple terms! Our goal is to make startup incorporation as smooth as possible.
Choosing the Right Entity Type: What's Best for You?
One of the first big choices is which legal entity type to form your business as. This will affect some important aspects of your company:
- Taxation - Some entities like LLCs are "pass-through" so profits/losses pass to the owners' tax returns. C-corps are taxed at the corporate level.
- Ownership - With LLCs, partners can divide up ownership interests flexibly. C-corps issue stock according to set rules.
- Financing - C-corps can more easily attract venture capital and public investment compared to other structures.
- Liability Protection - All offer liability protection but levels vary. Owners are generally not personally responsible for debts.
Many startups pick LLCs or S-corps for pass-through taxation. But C-corps have advantages if you envision attracting venture capital or going public one day. They also allow tax-qualified stock options to attract talent.
If forming a C-corp, founders may qualify for a capital gains tax break on sale of certain small business stock. Just meet the requirements!
Bottom line - weigh factors carefully for what fits your startup best. We can walk you through the pros and cons.
Incorporating in Delaware vs. California vs. Washington - Which Is Better?
Once you pick an entity type, where should you incorporate? Two popular options are:
- Delaware - Known for established business laws if you want to eventually go public. But added costs to qualify out-of-state.
- California - Lots of startup activity but laws limit invoking other states' rules. Reincorporating later if relocating could be difficult.
Some key differences in laws include:
- Shareholder Voting - CA has stronger minority shareholder rights
- Board Governance - DE gives directors more flexibility
- Dividends - CA limits dividend payments more
- Officer Duties - DE favors officers/directors over shareholders
For many startups seeking venture capital, Delaware ultimately wins out. But weigh the total costs down the road.
Don't Overlook Washington for Incorporating Your Startup
With so much talk about Delaware and California, you may be wondering - what about incorporating right here in Washington State?
As a local business attorney, I often guide clients through forming their companies in-state. Washington offers many benefits:
- Business-Friendly Laws - Washington's corporation laws are designed to be flexible and support companies of all sizes.
- Low Costs - The filing fees to form a corporation are very reasonable compared to Delaware. And you avoid out-of-state qualification costs.
- Resources - There is a robust startup ecosystem and investor network located right in Seattle and statewide.
- Quality of Life - Seattle is routinely ranked as one of the best cities for startups thanks to its talent pool, culture, and accessibility.
Some key aspects of Washington corporate law:
- Shareholder Protections - Minority shareholders have strong rights compared to Delaware.
- Board Governance - Directors and officers have more flexibility in decision-making compared to California.
- Taxes - No corporate income tax (at the state level). Some taxes still apply.
- Maintenance - Very easy annual renewal process to maintain incorporation.
While Delaware or California are fine choices, don't overlook the benefits of keeping your startup local if that fits your needs. We can walk you through the pros and cons of incorporating in Washington.
No simple answer - discuss with us what location works better for your goals!
Selecting the Perfect Business Name
Your business name is so important! You want it to communicate what your company does while also being memorable and unique. Once you have a great name in mind, check that it’s available in your state and anywhere you plan to do business. Then reserve it!
Pair it with an available domain name customers can easily find - buy an existing one if needed. Your website URL and emails should match your brand. Run any name or slogan by us - we can help trademark strong brands worth protecting!
Should You Convert Your Existing Partnership or LLC?
Many startups begin as partnerships or LLCs. But converting to a C-corp may be needed to access more financing options.
Conversions range from simple filings (statutory conversions) to complex assignment of assets and interests (nonstatutory).
If already operating, we’ll make sure the transition goes smoothly with no business interruptions. Let us handle the paperwork!
The conversion process depends on your LLC’s tax status too. We'll determine the best approach.
Final Steps to Form Your New Corporation
Once you've made key decisions about what and where to incorporate, we will take care of final steps:
- Filing formation documents with the state
- Drafting bylaws to govern operations
- Appointing your board of directors
- Issuing stock certificates and holding organizational meetings
Before you know it, your corporation will be off and running! We make the process as seamless as possible.
We're Here to Help Every Step of the Way!
As you can see, starting a business involves some critical legal choices. But you don't have to figure it all out alone!
Our attorneys at Wheat Legal PLLC guide startups through incorporation and beyond. We want to see your venture succeed.
We offer free consultations to review your goals and provide strategic guidance on forming your business. Together we'll get your startup on the right track!