optimize your corporate structure for investment
DESCRIPTION
So you have an idea? Now it’s time to make a company, but where to start? This online Google Hangout will help you get started. Learn the best way to structure your company in preparation for investment and how to choose between some of the various options, such as corporations, limited liability companies, sole proprietorship and partnerships. http://www.thecapitalnetwork.org/events/optimize-your-corporate-structure-for-investment/TRANSCRIPT
Nutter McClennen & Fish LLP Seaport West 155 Seaport Boulevard Boston, Massachusetts 02210 Telephone 617.439.2000
www.nutter.com
Optimizing Corporate Structure for Investment
Adam B. Ghander
October 10, 2013
First, a word about our title….
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Lingo Boot Camp
Equity and Debt Concepts
• Equity is a bundle of sticks Economic rights – dividends, upside Control rights – nominate directors, control votes
• Debt is a bundle of pointy stick Economic rights – interest, senior position to equity Control rights – hammer control provisions
Lingo Boot Camp
Corporate Structure Basics
• Owners (Stockholders and Members)
• Officers
• Directors or Managers
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Lingo Boot Camp
Understanding Capitalization
• Fully-diluted equity Authorized shares vs. issued shares
• Convertible debt
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What to consider when you’re considering….
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Personal Liability Taxation
Running the Opearation
Getting Investors
The Most Likely Candidates
• Sole Proprietorship
• Corporation
• Limited Liability Company
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Sole Proprietorship
Unincorporated business owned by one person
• Liability? Complete personal liability for debts of business
• Taxation? One level of taxation—paid by owner on personal return
• Running the Shop? No significant administrative burdens
• Invest-ability? Generally speaking, nope.
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Corporations – C and S Corporations
Formal entity registered with state
• Liability? No personal liability for shareholders
• Taxation? C Corporations – two levels of taxation S Corporations – one level of taxation
• Running the Shop? Corporate formalities
• Invest-ability? C Corporation – quite inviting S Corporation – still inviting but some restrictions apply
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Limited Liability Companies
Limited liability and tax flexible entities
• Liability? No personal liability for members
• Taxation? Complicates owners’ filings but only one level of taxation
• Running the Shop? Some formalities but boatloads of flexibility Incentive equity complications
• Invest-ability? “UBTI” and effectively connected income
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Consider the Lifecycle of the Business
• When will you generate taxable income?
• Who are the owners at formation?
• Who will you need to bring in later?
• What’s the exit strategy?
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Adam B. Ghander, Esq. Nutter McClennen & Fish LLP 155 Seaport Blvd. Boston, Massachusetts 02210 email: [email protected] office: 617-439-2991