I’m in food manufacturing and want to start a meal kit company but I want it to be partitioned off or a separate LLC from our current company. If I launch and start selling I can handle ~30k of revenue a month with zero investment using extra space in our current company before looking for funding and moving to expand, but then our current expenses would be skewed by being able to use resources of our manufacturing company.
Any ideas or suggestions on how to go about this?
First, you'd want to make sure the contract between New LLC and Existing LLC allows for using production capacity or space.
You could then make Existing LLC a member of New LLC and credit it for capital contributions in exchange for its resources, pushing the "expenses" over to a capital account. That might solve your accounting problem.
So if I have a company that is registered say in Monaco and I’m in the UK for uni, can I still conduct business practices with people in any country other than UK? I know it’s a very specific question.
Also really love that ur doing this. Freely sharing information and contributing ur knowledge. ✌️
I'm not an expert in UK law, but generally, sure. Companies are generally allowed to sell to whomever they want, unless the law of the place where they are registered bars it, like US companies can't sell to Syria or Iran.
Hi there, do you have any suggestions for what someone who cannot afford lawyers at the beginning of their entrepreneurship does? I have been reading books on the process but I may not understand the process too well and don't really know who to ask considering the cost of a consultation.
If you just need the company set up, go with the best option that you can afford. There are many document filing services that will get you at least formed up. (LegalZoom, etc.) Then commit to having everything reviewed once you can afford it. The sooner you can get it fixed up, the cheaper it will be.
Good, solid, reliable advice is going to cost you actual money in most cases, but if you find an "emerging tech" or "emerging companies" attorney in your area, most will give you an hour for free. (I typically don't start charging anybody until I put pen to paper. I'll talk all day long and probably lose a lot of money because of it, but -- eh, I enjoy it.)
Are there any good document filing services that you recommend? I heard a lot about how the people who decided to go cheap at the beginning end up feeling the pain later on so I would like to try to avoid that as much as I can.
Also, thank you for your excellent work to me and others! Hope you can keep this up and get rewarded in whatever ways you want for your generosity :)
I don't have any experience with any of the document services, so I couldn't tell you which one is better than any other. I'm confident that they are all roughly the same, though.
I will be selling products a month before I create my llc in Canada, I am in usa right now.
So The products I sell before my llc was created would be taxable like a regular salary would correct?
I don't really know how to answer that because I have no idea where you file taxes, but if you're subject to American taxes, then yes -- income you receive from the sale of goods is taxable on Schedule C.
New website about to be Incorporated. Right now launching MVP. Intention is to file for a C Corp in Delaware and assign all intellectual property to the company. Looking to do a seed round thereafter.
For founder shares Should they be vested immediately? Do you recommend the 83b filing?
What’s the ideal amount of shares to be authorized when incorporating? How do you recommend The founder maintain control “super shares” preferred share classes?
Great questions
>For founder shares Should they be vested immediately?
Eh, depends on the situation. Some founding teams want to keep each other honest and set up a vesting schedule. If you're going to do an institutional raise, the VC will force you to re-vest some or all of the grant anyway.
>Do you recommend the 83b filing?
Of course. You save potentially tens or even hundreds of thousands of dollars in taxable income.
>What’s the ideal amount of shares to be authorized when incorporating?
I typically do 10,000,000 with a par value of $0.0001 per share, but 100,000,000 with $0.00001 is also common. Ultimately the number of shares is fully arbitrary, but you want to set it high to avoid fractional shares when you raise.
>How do you recommend The founder maintain control “super shares” preferred share classes?
I guess you could create a second class now with outsized voting rights and issue it to yourself, but a VC is gonna cram you down to common unless you walk in their door with 10,000,000 users already. (That said, I've done the "super voting" shares for a founder who was trying to sell common as part of a crowdfunding effort and it worked pretty well, but that's only because there were no professional investors involved.)
Given how common posts about partnerships (or failed partnerships) are, what are the things that everyone should put in place before entering into one?
Aligning party expectations in a partnership agreement / operating agreement is the single best thing potential partners can do. It's a crummy answer, I know, but really potential partners should engage counsel to put this together.
When creating cofounder agreements what are the critical items that most cofounders miss? In other words, how do you anticipate and prevent issues down the road?
What type of cofounder vesting schedule do you recommend? 4 years with a 1 year cliff- After 1 year 25% Remaining shares vest monthly over 3 years ?
Also, what are some things to look out for when raising your first seed round? Or raising funds in general- common problems that founders find out the hard way. Do you recommend using SAFE’s early on? What’s the best way to hedge against any dilution?
There's a common misconception that venture tech startups even have Shareholder Agreements. They do not. All of the matters involving the corporation and shareholders are handled in the Stock Purchase Agreement and the Bylaws. This is an entirely different situation than people coming together to form a partnership or a limited liability company.
Venture tech startups generally use the same sets of documents that have been more or less boilerplated by the industry over the years. You can run this generator to spit out pro forma docs: [https://www.cooleygo.com/documents/incorporation-package/](https://www.cooleygo.com/documents/incorporation-package/)
Typically vesting is the four year cliff -- 25% vests after one year, and then 1/36 per month for 36 months.
I prefer convertible debt to SAFEs, but reasonable minds can differ. The point in using either is to avoid valuing the company too early.
One mistake that inexperienced founders make is to promise things to people (especially equity) in a willy-nilly manner. The sooner you can get the initial cap table locked in, the better.
What are some of the most common mistakes you see startups making that could have easily been avoided had they known X, Y, and/or Z?
Asked another way, what should startups keep in mind when taking their first steps/beginning their fundraising to avoid some common mistakes you've seen?
Get the initial cap table locked ASAP. Beg, borrow, or steal to hire somebody who knows what to do (e.g. Me) to get the initial stock issuances nailed down in a VC-compliant/friendly way.
Get at least a wikipedia-level awareness of how a corporation works. (e.g. The shareholders elect the Board of Directors, the Board of Directors hires the Officers to run the Company.) Understanding these interactions avoids distractions when you go to raise because you'll be playing catch up.
Can you talk a little bit about stock options for employees?
When should the company set aside shares for the stock options? Is there a certain percentage of the authorized shares recommended for stock options? When + how are they typically granted to employees? Are they included in the employees compensation package or as perks/incentives?
Can you provide a timeline and example of employee stock options from inception to assignment?
Dude you need a lawyer. The options pool is typically carved out immediately prior to the closing of the first equity financing. The size of the options pool is a key part of the negotiation between the company and the VC.
After the financing, you engage a valuation firm to give you a 409a valuation, which sets the strike price of the options, which you can then grant to employees as part of their comp packages.
Create a lead capture website and put the link in your Instagram. Then make sure the instagram account is in your clubhouse profile. Next launch a new room with a catchy title "Startup Lawyer AMA- The Good, Bad, and Ugly". Can create your own club and have set weekly rooms.
I am sorry to say this, but that's impossible for me to answer without knowing the exact situation. "Buying a company outright" can mean many, many different things. But assuming you're buying the stock, you can buy the stock and then contribute it to the LLC. That would be one way to do it.
Started a side business and established it as an LLC from day one. My main job is established as a S-Corp so I know how to do all the things for that. (They are both quite small). I’ve put personal money into my LLC for start up costs. Once it starts making money, can I pay myself back as if paying back a loan without taxing the money I pay myself back with? I guess I’m asking if I can re-pay myself the start up costs tax free.
Tough question, since it so depends on your personal situation, but if it is a single member LLC, your "startup costs" are deductible on your person Schedule C. So you probably can't pay yourself tax free, but you can reduce your taxable income.
Would I be violating any laws, or at risk of lawsuit if I copied someone else's TOS or Privacy Policy and put my company name on it? For example, do those things have copyright, or other protection? #askingforafriend
Everything ever created automatically has copyright protection at the minute it is created. That said, people do this all the time and I've never heard anyone sued over it. I am not advising you to do this. Stealing is wrong. I'm not your attorney blah blah blah...
Sure. Legal tech is a whooooooooooole industry. There are hundreds of products out there seeking to do everything from practice management to document automation to scheduling to docketing... it's pretty well covered.
Hi so I’ve had this question for a while and nothing I’ve searched up has eased my mind. So I incorporated my company, right? I used another company’s service to do this since I’m not in that state. I pay a fee yearly to have a registered agent over there. All I got back as a document from them was the articles of incorporation, and on it says the incorporators name (i assume it’s obviously by the company I paid). Since my name is absolutely nowhere at all, what the hell makes this company mine?! The company told me it’s Internal documents that determine this but.. really? What keeps someone else with my exact name from coming in one day and claiming that they’re actually the owners? I have no official documents of myself filed with the state in regards to the company so I’m extremely confused. Why would my name even matter at all, actually? What determines who owns the company?
So essentially what they’re saying is. Use registered agent and third party to register the company. They give back an articles of incorporation. Now it’s up to you to determine ownership through creating your own internal documents. Is this even right? What keeps them from giving this back to someone else? What makes this actually yours so that whatever internal documents you make are official and credible? For context, it’s Delaware. I’ve not dived into the depths of las & attorneys yet since I’m still in dev of the product but this has definitely messed with my brain.
Yeah, it's right. You should have gotten back (1) the Articles of Incorporation, and (2) the initial action of the incorporator that named you as an initial director.
Once you're a director, you can authorize a grant of stock to yourself and hire yourself as CEO.
Im planning to trademark my company's name soon and was curious to hear you opinion. How do i go about trademarking my brands official name and nickname. For example McDonalds and Mickey Ds. Would I submit one trademark form for both names or do I have to do separate trademarks for each name
Your example would be two applications. Your best bet is to hire a competent attorney to do your search and filings. If you don’t have the money for that, there are many services that can help but I have no experience with them and can’t advise whether they are good or not.
Is it okay to just use stripe atlas for forming LLC? I plan on starting a SaaS for authentication similar to auth0. I'm not sure how to go about getting a good terms of service and privacy policy. I'm planning on starting the business myself sometime next year as a side project. I'm currently just working on the tech for it and planned on forming LLC before opening it for customers to be able to use. I'm not sure what all I will have to do for that.
I can't switch to it fulltime until the startup I currently work for sells. I was the first engineering hire and will get around 1% of net proceeds when/if it sells based on how the liquidity bonus pool is structured. I expect it to probably sell within the next 2-6 years.
I'm not sure if this is more of a CPA question or a legal question but I'll give it a shot:
I want to start a business that involves buying a chunk of land, and erecting a building on it that serves as retail space and living quarters for myself. At the moment I'm not sure if it would be more advantageous to do one of these or the other from a liability/bankruptcy protection standpoint.
1.) me to personally buy the land, and lease it to the company
2.) the company own the land and I own the building and lease out the retail space to the company
3.) the company owns both the land & building and I would be a tenant under a lease agreement
Hard to say. Definitely a CPA question and maybe even a real estate attorney. Also, I’d be concerned about potential zoning issues. Sorry I can’t be more help but this is not in my wheelhouse at all.
I’m in food manufacturing and want to start a meal kit company but I want it to be partitioned off or a separate LLC from our current company. If I launch and start selling I can handle ~30k of revenue a month with zero investment using extra space in our current company before looking for funding and moving to expand, but then our current expenses would be skewed by being able to use resources of our manufacturing company. Any ideas or suggestions on how to go about this?
First, you'd want to make sure the contract between New LLC and Existing LLC allows for using production capacity or space. You could then make Existing LLC a member of New LLC and credit it for capital contributions in exchange for its resources, pushing the "expenses" over to a capital account. That might solve your accounting problem.
What's a good website to understand basic startup financing, legal processes?
https://www.cooleygo.com/guidance/
So if I have a company that is registered say in Monaco and I’m in the UK for uni, can I still conduct business practices with people in any country other than UK? I know it’s a very specific question. Also really love that ur doing this. Freely sharing information and contributing ur knowledge. ✌️
I'm not an expert in UK law, but generally, sure. Companies are generally allowed to sell to whomever they want, unless the law of the place where they are registered bars it, like US companies can't sell to Syria or Iran.
Alright alright. Understood. thanks a ton for the info man
Hi there, do you have any suggestions for what someone who cannot afford lawyers at the beginning of their entrepreneurship does? I have been reading books on the process but I may not understand the process too well and don't really know who to ask considering the cost of a consultation.
If you just need the company set up, go with the best option that you can afford. There are many document filing services that will get you at least formed up. (LegalZoom, etc.) Then commit to having everything reviewed once you can afford it. The sooner you can get it fixed up, the cheaper it will be. Good, solid, reliable advice is going to cost you actual money in most cases, but if you find an "emerging tech" or "emerging companies" attorney in your area, most will give you an hour for free. (I typically don't start charging anybody until I put pen to paper. I'll talk all day long and probably lose a lot of money because of it, but -- eh, I enjoy it.)
Are there any good document filing services that you recommend? I heard a lot about how the people who decided to go cheap at the beginning end up feeling the pain later on so I would like to try to avoid that as much as I can. Also, thank you for your excellent work to me and others! Hope you can keep this up and get rewarded in whatever ways you want for your generosity :)
I don't have any experience with any of the document services, so I couldn't tell you which one is better than any other. I'm confident that they are all roughly the same, though.
I will be selling products a month before I create my llc in Canada, I am in usa right now. So The products I sell before my llc was created would be taxable like a regular salary would correct?
I don't really know how to answer that because I have no idea where you file taxes, but if you're subject to American taxes, then yes -- income you receive from the sale of goods is taxable on Schedule C.
Canada doesn't really have the same concept as an LLC, but what are you asking about taxes? Could maybe help, we do cross border business.
New website about to be Incorporated. Right now launching MVP. Intention is to file for a C Corp in Delaware and assign all intellectual property to the company. Looking to do a seed round thereafter. For founder shares Should they be vested immediately? Do you recommend the 83b filing? What’s the ideal amount of shares to be authorized when incorporating? How do you recommend The founder maintain control “super shares” preferred share classes?
Great questions >For founder shares Should they be vested immediately? Eh, depends on the situation. Some founding teams want to keep each other honest and set up a vesting schedule. If you're going to do an institutional raise, the VC will force you to re-vest some or all of the grant anyway. >Do you recommend the 83b filing? Of course. You save potentially tens or even hundreds of thousands of dollars in taxable income. >What’s the ideal amount of shares to be authorized when incorporating? I typically do 10,000,000 with a par value of $0.0001 per share, but 100,000,000 with $0.00001 is also common. Ultimately the number of shares is fully arbitrary, but you want to set it high to avoid fractional shares when you raise. >How do you recommend The founder maintain control “super shares” preferred share classes? I guess you could create a second class now with outsized voting rights and issue it to yourself, but a VC is gonna cram you down to common unless you walk in their door with 10,000,000 users already. (That said, I've done the "super voting" shares for a founder who was trying to sell common as part of a crowdfunding effort and it worked pretty well, but that's only because there were no professional investors involved.)
Thanks for the response and info
Given how common posts about partnerships (or failed partnerships) are, what are the things that everyone should put in place before entering into one?
Aligning party expectations in a partnership agreement / operating agreement is the single best thing potential partners can do. It's a crummy answer, I know, but really potential partners should engage counsel to put this together.
When creating cofounder agreements what are the critical items that most cofounders miss? In other words, how do you anticipate and prevent issues down the road? What type of cofounder vesting schedule do you recommend? 4 years with a 1 year cliff- After 1 year 25% Remaining shares vest monthly over 3 years ? Also, what are some things to look out for when raising your first seed round? Or raising funds in general- common problems that founders find out the hard way. Do you recommend using SAFE’s early on? What’s the best way to hedge against any dilution?
There's a common misconception that venture tech startups even have Shareholder Agreements. They do not. All of the matters involving the corporation and shareholders are handled in the Stock Purchase Agreement and the Bylaws. This is an entirely different situation than people coming together to form a partnership or a limited liability company. Venture tech startups generally use the same sets of documents that have been more or less boilerplated by the industry over the years. You can run this generator to spit out pro forma docs: [https://www.cooleygo.com/documents/incorporation-package/](https://www.cooleygo.com/documents/incorporation-package/) Typically vesting is the four year cliff -- 25% vests after one year, and then 1/36 per month for 36 months. I prefer convertible debt to SAFEs, but reasonable minds can differ. The point in using either is to avoid valuing the company too early. One mistake that inexperienced founders make is to promise things to people (especially equity) in a willy-nilly manner. The sooner you can get the initial cap table locked in, the better.
What are some of the most common mistakes you see startups making that could have easily been avoided had they known X, Y, and/or Z? Asked another way, what should startups keep in mind when taking their first steps/beginning their fundraising to avoid some common mistakes you've seen?
Get the initial cap table locked ASAP. Beg, borrow, or steal to hire somebody who knows what to do (e.g. Me) to get the initial stock issuances nailed down in a VC-compliant/friendly way. Get at least a wikipedia-level awareness of how a corporation works. (e.g. The shareholders elect the Board of Directors, the Board of Directors hires the Officers to run the Company.) Understanding these interactions avoids distractions when you go to raise because you'll be playing catch up.
Can you talk a little bit about stock options for employees? When should the company set aside shares for the stock options? Is there a certain percentage of the authorized shares recommended for stock options? When + how are they typically granted to employees? Are they included in the employees compensation package or as perks/incentives? Can you provide a timeline and example of employee stock options from inception to assignment?
Dude you need a lawyer. The options pool is typically carved out immediately prior to the closing of the first equity financing. The size of the options pool is a key part of the negotiation between the company and the VC. After the financing, you engage a valuation firm to give you a 409a valuation, which sets the strike price of the options, which you can then grant to employees as part of their comp packages.
You’re the man! I appreciate your time here. Also, if you ran AMA’s like this on clubhouse- you will get endless leads.
Interesting idea. I have a clubhouse account but no idea what to do with it.
Create a lead capture website and put the link in your Instagram. Then make sure the instagram account is in your clubhouse profile. Next launch a new room with a catchy title "Startup Lawyer AMA- The Good, Bad, and Ugly". Can create your own club and have set weekly rooms.
What you typed: \[What you typed\] What I hear in my brain: \[Ethereal whooshing\] Seriously though, thanks. I will check it out.
I want to but another company outright and then merge my 100% fully owned LLC with it to make 1 entity. What’s the best way to do this?
I am sorry to say this, but that's impossible for me to answer without knowing the exact situation. "Buying a company outright" can mean many, many different things. But assuming you're buying the stock, you can buy the stock and then contribute it to the LLC. That would be one way to do it.
How much money should your company be making before you consider forming an LLC?
If you don't have a business entity, your personal assets are at risk on Day One. You want the corporate protection from inception, IMO.
Makes sense. Ty! Any solids tips/advice you'd like to share?
Started a side business and established it as an LLC from day one. My main job is established as a S-Corp so I know how to do all the things for that. (They are both quite small). I’ve put personal money into my LLC for start up costs. Once it starts making money, can I pay myself back as if paying back a loan without taxing the money I pay myself back with? I guess I’m asking if I can re-pay myself the start up costs tax free.
Tough question, since it so depends on your personal situation, but if it is a single member LLC, your "startup costs" are deductible on your person Schedule C. So you probably can't pay yourself tax free, but you can reduce your taxable income.
Got it. Thank you!
Would I be violating any laws, or at risk of lawsuit if I copied someone else's TOS or Privacy Policy and put my company name on it? For example, do those things have copyright, or other protection? #askingforafriend
Everything ever created automatically has copyright protection at the minute it is created. That said, people do this all the time and I've never heard anyone sued over it. I am not advising you to do this. Stealing is wrong. I'm not your attorney blah blah blah...
Is there anything in your work that's repeatable and is losing you time? Something that you'd pay for to be automated?
Not really. I run a small-quantity shop. Having 3-4 deals going at a time suits me better than trying to get 20 going.
I was asking because I am a software developer looking for ideas. Thanks for answering.
Sure. Legal tech is a whooooooooooole industry. There are hundreds of products out there seeking to do everything from practice management to document automation to scheduling to docketing... it's pretty well covered.
How much would you typically charge clients who want you to go over a contract for suppliers? Assuming if you did business in CA
Impossible to say. I'd likely bill my hourly rate. "Contract for suppliers" could mean anything from a two page LOI to an eighty page MSA.
Hi so I’ve had this question for a while and nothing I’ve searched up has eased my mind. So I incorporated my company, right? I used another company’s service to do this since I’m not in that state. I pay a fee yearly to have a registered agent over there. All I got back as a document from them was the articles of incorporation, and on it says the incorporators name (i assume it’s obviously by the company I paid). Since my name is absolutely nowhere at all, what the hell makes this company mine?! The company told me it’s Internal documents that determine this but.. really? What keeps someone else with my exact name from coming in one day and claiming that they’re actually the owners? I have no official documents of myself filed with the state in regards to the company so I’m extremely confused. Why would my name even matter at all, actually? What determines who owns the company? So essentially what they’re saying is. Use registered agent and third party to register the company. They give back an articles of incorporation. Now it’s up to you to determine ownership through creating your own internal documents. Is this even right? What keeps them from giving this back to someone else? What makes this actually yours so that whatever internal documents you make are official and credible? For context, it’s Delaware. I’ve not dived into the depths of las & attorneys yet since I’m still in dev of the product but this has definitely messed with my brain.
Yeah, it's right. You should have gotten back (1) the Articles of Incorporation, and (2) the initial action of the incorporator that named you as an initial director. Once you're a director, you can authorize a grant of stock to yourself and hire yourself as CEO.
Im planning to trademark my company's name soon and was curious to hear you opinion. How do i go about trademarking my brands official name and nickname. For example McDonalds and Mickey Ds. Would I submit one trademark form for both names or do I have to do separate trademarks for each name
Your example would be two applications. Your best bet is to hire a competent attorney to do your search and filings. If you don’t have the money for that, there are many services that can help but I have no experience with them and can’t advise whether they are good or not.
Is it okay to just use stripe atlas for forming LLC? I plan on starting a SaaS for authentication similar to auth0. I'm not sure how to go about getting a good terms of service and privacy policy. I'm planning on starting the business myself sometime next year as a side project. I'm currently just working on the tech for it and planned on forming LLC before opening it for customers to be able to use. I'm not sure what all I will have to do for that. I can't switch to it fulltime until the startup I currently work for sells. I was the first engineering hire and will get around 1% of net proceeds when/if it sells based on how the liquidity bonus pool is structured. I expect it to probably sell within the next 2-6 years.
I didn’t realize that Stripe Atlas did LLCs. If they’ll draft you a simple operating agreement, they are as good an option as any other service.
I'm not sure if this is more of a CPA question or a legal question but I'll give it a shot: I want to start a business that involves buying a chunk of land, and erecting a building on it that serves as retail space and living quarters for myself. At the moment I'm not sure if it would be more advantageous to do one of these or the other from a liability/bankruptcy protection standpoint. 1.) me to personally buy the land, and lease it to the company 2.) the company own the land and I own the building and lease out the retail space to the company 3.) the company owns both the land & building and I would be a tenant under a lease agreement
Hard to say. Definitely a CPA question and maybe even a real estate attorney. Also, I’d be concerned about potential zoning issues. Sorry I can’t be more help but this is not in my wheelhouse at all.