Accounting

Start up Accountant Recommendations

Celu Ramasamy FX Artist/Developer at DreamWorks Animation

February 19th, 2013

Hi guys,

I'm the early stages of forming my LLC. We dont have any funding right now. We are looking to consult with an accountant with expertise in early stage tech startups to get some advice on how to setup things in the right way.  If you have any good experiences from the past or know of someone you can recommend I would love to hear it.


Thanks,

Celu.
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Shai Herzog Mobile/Social/Location Dev Manager, Architect, Inventor & Entrepreneur

February 20th, 2013

Celu,

You raise several independent questions:

1. LLC vs. Corp: LLC is a very flexible and free form entity. That flexibility brings in a lot of complexity and overhead. The best solution is to incorporate as an S-Corp (S for small) - S-Corp gives you most if not all the benefits of an LLC in a very light weight. To be an S-Corp you need to incorporate and make an S-Corp selection with the IRS (if you miss the deadline you automatically become a C-Corp). S-Corp also prevents the need for restructuring when you get investments - post investment you simply switch to C-Corp with the same structure.

2. Delaware vs. CA. Most Silicone Valley, across the US, and even international Start ups are registered in Delaware - it became the common legal-framework for hi-tech, much better than to incorporate at a state level, where each state has different legal rules. BUT since we live in one USA, CA recognizes Delaware corporations (I believe all you have to do is to register/inform CA that you're doing business in CA - but you don't have to be a CA corporation to get the incorporation benefits (Imagine if that wasn't the case - companies would not be able to freely operate across state lines). 

S-Corp and LLC both allow you to deduct expenses for your Startup against personal income. C-Corp doesn't.

One advice is to avoid registering millions of stocks because for some strange reason Delaware taxes you yearly based on the number of stocks (even without income). Each million of stocks cost somewhere around $30/y (not 100% sure). Heck, it's not like you need more than 1m stocks anyway :-)

3. From a tax perspective S-Corp offers one great advantage. You can issue Restricted Stocks that vest over 4 years, which are worth nothing at the time of issue, so 100% of the income from selling stocks later is capital gains). If a co-founder or employees leave before 4 years they can keep the stocks that vested, but the rest is returned to the company.

Disclaimer: I'm not a lawyer, nor a CPA, so all my above advise is based on advice I got from others (including internet research), so you should do your own dependent validation before taking action.

Good luck,

Shai

Matt Mireles

February 19th, 2013

@Celu: Wrong. Setup a Delaware C-corp and, when you're ready, file as a foreign corp operating California. 

http://www.sos.ca.gov/business/be/faqs.htm#form-question7

If you don't and you're found out, you'll be subject to fines, but you don't lose personal liability protection. That only happens in rare circumstances. 

More generally, if you're going to incorporate your company, get competent legal counsel with early stage startup experience. This shit ain't rocket science, but it is a specialty field and non-specialists have a penchant for screwing it up. In Los Angeles, I recommend Scott Walker:

http://walkercorporatelaw.com/

Matt Mireles

February 19th, 2013

My advice: Don't waste time with an LLC. Setup a Delaware C-corp w/ 4 yr founder vesting. Will save you headache and legal fees. 

For some perspective, I sold my last company (2008-2012) to a competitor after raising $1.1MM from Google Ventures & 500 Startups. 

Keir Reynolds Chairman and CEO of MEZZI SMART LUXURY

February 19th, 2013

Fodio.co Sent from my BlackBerry device on the Rogers Wireless Network

David Crooke Serial entrepreneur and CTO

February 19th, 2013

VirtualCFO worked well for us in 99/00.

Celu Ramasamy FX Artist/Developer at DreamWorks Animation

February 19th, 2013

Correct me if I'm wrong, I'm a resident of California and suspect most of our operation to be based here in the state. It was my understanding that If you don't incorporate in the state that you are planning to do the bulk of your operations in, then you could lose the personal liability protection offered by these legal entities?  





John Arroyo Delivering ecommerce and cloud applications, CEO of Arroyo Labs

February 19th, 2013

Celu, you don't have to incorporate in the state but you still have to register with the state.  Found that out when I was trying to get health coverage...had to file with CA as a foreign corporation.  It wasn't hard at all and you can even do it through legalzoom if you want to expedite.  

Alex Gourley Founder at Active Theory Inc

February 19th, 2013

We've found a real swiss army knife of a bookkeeper/HR/financial advisor. She really knows her stuff and is super professional. http://www.linkedin.com/in/stephaniebanister / sbanister@erisa-wise.com

Celu Ramasamy FX Artist/Developer at DreamWorks Animation

February 19th, 2013

we were debating the various options. we are at a very early stage of protyping an idea. we dont have plans to go for funding round until we have beta tested our product with small group of customers who are busineses. which we suspect will happen over the next six months or so. Our product is pretty light weight so we felt that we wouldnt need to bring in outside help until we cross the beta testing stage. At which point we plan to restructure if need be to get ready for investor funding. so to sum it up we just wanted to keep things light weight until we crossed the beta testing stage. Right now we want to make sure we dont do anything blatantly wrong interms of structuring the company, hence seeking out professional help to consult on important points. are we worried about getting things absolutley right when it comes to company structuring? to be honest thats not high on our priority list right now. our main high priority thing that we expect out of incorporation is personal liability protection. right now we want to focus all our resources on building a really good beta product. if it gains traction then we could always make the other things including our corporation structuring perfect for our need then. im sure theres pros and cons to this approach. would love to hear ur thoughts based on ur experiences. 

Celu Ramasamy FX Artist/Developer at DreamWorks Animation

February 19th, 2013

Cool. Thanks for the tip. Will definitely look into this.