Question 1

What is an LLC and what does it actually give me?

Accepted Answer

A limited liability company (LLC) is a legal entity that separates your personal assets from your business liabilities. If the business is sued or owes debts, creditors generally cannot come after your personal bank accounts, home, or savings — only the business's assets are at risk. Beyond liability protection, an LLC provides credibility with clients and vendors, can have a bank account and contracts in its own name, and allows you to choose how it is taxed (as a sole proprietorship, partnership, S-corp, or C-corp).

Question 2

What documents are included in an LLC formation?

Accepted Answer

Our flat-fee LLC formation includes: (1) Articles of Organization — the document filed with the state to legally create your LLC; (2) an Operating Agreement — the internal governing document that defines member rights, responsibilities, profit allocation, and decision-making procedures; (3) member certificates evidencing ownership interests; and (4) organizational resolutions authorizing initial business actions. All documents are delivered through your client portal.

Question 3

How is an LLC taxed?

Accepted Answer

By default, a single-member LLC is taxed as a sole proprietorship (disregarded entity), and a multi-member LLC is taxed as a partnership — both pass income through to members' personal returns, avoiding the "double taxation" associated with C-corporations. LLCs can also elect S-corp or C-corp tax treatment. The right choice depends on your income level, plans for reinvestment, and exit strategy. We recommend consulting a CPA alongside your formation.

Question 4

Do I need an operating agreement even if I'm the only member?

Accepted Answer

Yes. Even single-member LLCs should have an operating agreement. It reinforces the separation between you and the business (protecting your liability shield), is required by some banks to open a business account, and documents your ownership structure for investors, partners, or buyers down the road. Some states also require it by law.

Question 5

What are the ongoing compliance requirements for an LLC?

Accepted Answer

Requirements vary by state, but typically include: annual or biennial reports (with a state filing fee), maintaining a registered agent, keeping your operating agreement current as circumstances change, and — if you've elected S-corp status — following corporate formalities like payroll. Most LLCs have lighter ongoing requirements than corporations.

Question 6

What is a corporation and when does it make sense?

Accepted Answer

A corporation is a separate legal entity owned by shareholders and managed by a board of directors. Corporations are the preferred structure when: (1) you plan to raise outside capital from investors (venture capital, angel investors); (2) you want to issue stock with different classes of rights; (3) you plan to offer equity compensation to employees; or (4) you anticipate an acquisition or IPO. The formality of a corporation — separate board, bylaws, stock issuances — is a feature, not a bug, in investment and M&A contexts.

Question 7

What documents are included in a corporation formation?

Accepted Answer

Our flat-fee corporation formation includes: (1) Certificate of Incorporation / Charter — filed with the state to create the corporation; (2) Bylaws — the internal rules governing the corporation's operations; (3) Shareholders Agreement — governing the rights and obligations of shareholders; (4) Capitalization Table (cap table) — documenting equity ownership; (5) Stock Certificates — evidencing each shareholder's ownership; and (6) Formation Resolutions — board and shareholder resolutions authorizing initial corporate actions. All documents are delivered through your client portal.

Question 8

What is the difference between a C-corp and an S-corp?

Accepted Answer

A C-corporation is the default tax classification. It is taxed at the corporate level, and shareholders are taxed again when dividends are distributed — the so-called "double taxation." However, C-corps can have unlimited shareholders, multiple classes of stock, and foreign owners, which is why venture-backed companies use them. An S-corporation is a tax election that allows pass-through taxation (similar to an LLC) while maintaining corporate structure. S-corps have restrictions: no more than 100 shareholders, only one class of stock, and all shareholders must be U.S. citizens or residents. S-corps are often preferred for small, profitable businesses that won't seek institutional investment.

Question 9

What is a shareholders agreement and why do I need one?

Accepted Answer

A shareholders agreement is a private contract among shareholders that governs their relationship — covering things like transfer restrictions (who can sell shares and to whom), rights of first refusal, drag-along and tag-along rights, and what happens if a founder leaves. Unlike the charter and bylaws, which are public documents, the shareholders agreement is confidential. It is one of the most important documents a corporation can have, and disputes among shareholders without one can become extremely expensive.

Question 10

What is a cap table and why does it matter?

Accepted Answer

A capitalization table (cap table) is a spreadsheet or document that tracks who owns what percentage of your company, including any outstanding options, warrants, or convertible instruments. Investors, acquirers, and employees all need to understand the cap table before making commitments. A clean, well-maintained cap table from day one avoids enormous headaches during fundraising, option grants, and exit transactions.

Question 11

What are the main pros and cons of an LLC versus a corporation?

Accepted Answer

LLCs offer: flexibility in management and profit allocation, pass-through taxation by default (no double tax), lighter formality requirements, and easier single-owner operation. Downsides: institutional investors (VCs, private equity) generally will not invest in LLCs; self-employment taxes can be higher without an S-corp election; and equity compensation (stock options) is harder to implement. Corporations offer: investor-ready structure with multiple stock classes, clean equity compensation via stock options, familiar governance for investors and acquirers. Downsides: C-corps face double taxation if dividends are paid; more formalities required (board meetings, resolutions); S-corps have ownership restrictions. The right choice depends on your funding plans, tax situation, and the nature of the business.

Question 12

I'm not planning to raise venture capital. Should I still form a corporation?

Accepted Answer

Probably not — an LLC is almost always the better choice for businesses that will be owner-operated and funded without outside institutional investment. The pass-through taxation, flexibility, and lower administrative burden of an LLC typically outweigh the benefits of a corporation in that context. If your plans change and you later want to raise venture capital, you can convert your LLC to a corporation — though there are costs and tax implications to doing so.

Question 13

I want to raise money from friends, family, or angel investors. LLC or corporation?

Accepted Answer

This depends on the scale and formality of the raise. Small, informal investments (friends and family loans, simple convertible notes) can work with an LLC. However, if angels or seed funds are involved, they will typically expect a Delaware C-corporation. If you are uncertain about your fundraising trajectory, forming a Delaware C-corp from the start avoids a conversion later. We are happy to discuss your specific situation.

Question 14

Can I change my entity type after formation?

Accepted Answer

Yes, but it can be complicated and costly. Converting an LLC to a corporation (or vice versa) typically involves new formation documents, state filings, and potential tax consequences. Some states allow statutory conversions; others require a more complex process. It is always cleaner to choose the right structure from the beginning, which is why we encourage clients to think through their business plan and funding path before forming.

Question 15

What about a professional corporation (PC) or professional LLC (PLLC)?

Accepted Answer

Licensed professionals — attorneys, physicians, accountants, engineers — are often required by state law to form a professional corporation (PC) or professional LLC (PLLC) rather than a standard LLC or corporation. These structures limit liability in specific ways and must be owned entirely by licensed professionals in the relevant field. If your business involves a licensed profession, let us know — our flat-fee program covers standard formations, and we will advise whether a PLLC or PC is required and what that entails.

Question 16

Why do so many companies form in Delaware?

Accepted Answer

Delaware has the most developed and predictable body of corporate law in the United States. The Delaware Court of Chancery is a specialized business court with centuries of precedent and expert judges who hear nothing but corporate disputes — no juries. Delaware's General Corporation Law (DGCL) is highly flexible, well-understood by investors and their lawyers, and updated regularly. For these reasons, the overwhelming majority of venture-backed startups and publicly traded companies incorporate in Delaware, regardless of where they actually operate.

Question 17

What are the downsides of forming in Delaware if I don't operate there?

Accepted Answer

The main downsides are cost and complexity. If your business operates in another state (say, Tennessee), you will need to register as a "foreign corporation" or "foreign LLC" in Tennessee and pay fees and taxes in both states. You will also owe Delaware's Franchise Tax annually — for corporations, this can range from a few hundred to several thousand dollars depending on your authorized share structure. For small businesses that do not need the Delaware imprimatur, forming in your home state is often simpler and cheaper.

Question 18

When does it actually make sense to form in Delaware?

Accepted Answer

Forming in Delaware makes sense when: (1) you plan to raise institutional venture capital — VCs expect Delaware C-corps and some will not invest in entities formed elsewhere; (2) you have sophisticated co-founders or investors who expect Delaware governance; (3) you plan to issue options and maintain a stock option plan; or (4) you anticipate an acquisition by a large company, which will almost certainly prefer a Delaware entity. For a single-state small business with no immediate plans to raise capital, Delaware provides little benefit and adds administrative cost.

Question 19

What is the Delaware Franchise Tax and how is it calculated?

Accepted Answer

Delaware charges an annual Franchise Tax to corporations (LLCs pay a flat $300/year). For corporations, the tax is calculated under two methods: the Authorized Shares Method (based on total authorized shares) and the Assumed Par Value Capital Method (based on capital relative to shares). Startups with large authorized share counts can face surprisingly high taxes under the Authorized Shares Method — sometimes tens of thousands of dollars — but the Assumed Par Value Method typically reduces this dramatically. Many formation attorneys structure authorized share counts to minimize Delaware Franchise Tax exposure. We build this into our formation work.

Question 20

My startup advisor told me to always incorporate in Delaware. Is that right?

Accepted Answer

It's a reasonable default for startups seeking venture capital. But it is not universally correct. For small businesses, professional service firms, retail businesses, and others that will never seek institutional capital, forming in your home state is usually better. "Always Delaware" advice is frequently given by people whose primary experience is with VC-backed tech companies. We will help you evaluate your specific situation rather than apply a one-size-fits-all answer.

Question 21

Is fundraising and investor paperwork included in the flat fee?

Accepted Answer

No — fundraising advice and investor paperwork (term sheets, SAFEs, convertible notes, subscription agreements, Series A documents) are available for additional fees scoped separately based on the complexity of the transaction. The flat-fee formation program covers the foundational entity documents only. Contact us to discuss your fundraising plans and we will provide a custom engagement proposal.

Question 22

What is a SAFE and when should I use one?

Accepted Answer

A SAFE (Simple Agreement for Future Equity) is a standard early-stage investment instrument popularized by Y Combinator. It gives an investor the right to receive equity in a future priced round, without fixing a valuation at the time of investment. SAFEs are simpler and cheaper than convertible notes (no interest, no maturity date) and are widely accepted in seed-stage investing. They require a Delaware C-corporation and should be issued against a clean, well-documented cap table.

Question 23

Do I need a term sheet, or can I skip straight to definitive documents?

Accepted Answer

For small raises with one or two investors, it is sometimes acceptable to skip a formal term sheet and negotiate directly into definitive documents. For larger rounds with multiple investors or institutional lead investors, a term sheet is important — it aligns key economic and governance terms before the parties incur significant legal expense on definitive documents. We advise on this judgment call based on the specifics of your raise.

Question 24

What are the legal requirements for raising money from investors?

Accepted Answer

Raising money from outside investors is a securities transaction subject to federal and state law. Offerings must either be registered with the SEC or qualify for an exemption (most startup raises use Regulation D exemptions like Rule 506(b) or 506(c)). Failure to comply can result in investors having the right to rescind their investment and potential civil or criminal liability. We handle securities compliance as part of our fundraising engagements — do not attempt to raise capital without legal counsel.

LLC vs. Corporation —
What You Need to Know

Should You Form in Delaware?

Long-Term Maintenance Costs

Long-Term Cost Comparison

Ready to form your entity?

LLC vs. Corporation —What You Need to Know

Should You Form in Delaware?

Long-Term Maintenance Costs

Long-Term Cost Comparison

Ready to form your entity?

LLC vs. Corporation —
What You Need to Know