For a startup, how to decide on the business entity?

Question

I have often seen entrepreneurs confused on how to set up their startup business identity. Even after launching a startup, they change the business identity. So can you tell us how can startup entrepreneurs decide on the business identity? LLC, general partnership, sole proprietorship, corporation, etc.?

Brandon Roth · Accepted Answer

A question that can be overlooked is "how do you want to pay yourself and others?"

Claiming self employed status has a degree of pros and cons when it comes to your personal credit, purchasing power, and taxes. LLC/Sole Proprietor is the least hassle but a lot of times you will need to prove reliable paychecks or W2s if you want to buy a house or secure a large loan, for example. An LLC taxed as an S Corp can help alleviate this but also comes with more paperwork 😑 When you add employees and contractors to the mix, this can level up in unexpected ways.

Having a tax consultant and a very clear view of your goals and team size is absolutely worth the effort/money.

Jack Davis · Answer

Check out Stripe Atlas as they help you make an LLC or a Delaware C Corp. LLC is better off at the start when it is small and a one person team or something casual you are working on. If you are serious and trying to make the next Facebook and want investing from Venture Capitals you need a Delaware C Corp.

Answer

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Manuel Astudillo · Answer

@jack_davis7 Atlas Stripe is great but keep in mind that the US has 21% federal taxes and with the new administration it is likely they will increment or create new taxation. After making a lot of mistakes I would say that the best is not to start your company until you are at the verge of a product launch, in other words delay the incorporation as much as possible, and then probably incorporate in your local jurisdiction instead of abroad which oftentimes is cheaper and easier to admin, if you happen to get a huge success you can always find other more exotic incorporation alternatives down the road...

Roy · Answer

@jack_davis7 Thanx a lot for the input Jack!

Eugene Hauptmann · Answer

Here's a shortlist:
– https://www.clerky.com
– https://www.northwestregisteredagent.com

Delaware state is great for many reasons, including corporate flexibility. However if you're just building a business and don't necessarily need to incorporate there. Consider incorporating in your home state.

Roy · Answer

@rothtron That's some useful insights! Thanx Roth!

Roy · Answer

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Roy · Answer

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Answer

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Brandon Roth · Answer

@roy_outgrow Thanks! glad to help.

For a startup, how to decide on the business entity?

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