I recently answered the question “Is it best to form an LLC in Delaware?” on Quora. In response to a user comment, I opined on why so many corporations are formed in Delaware. My opinion, slightly edited, is reproduced below.
First, I’ll point out that I have what may be a minority opinion, so others may well disagree.
My opinion is closely tied to the types of clients that I typically have: Small startups and early-stage companies that will never seek or receive institutional funding, that will never go public, and that don’t need to put time, energy and money into theoretical legal issues that are likely never to be of consequence to the success of their businesses.
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Many startup companies are betwixt and between when it comes to funding: They need too much for angel investor groups, but too little for venture capitalists. According to the Wall Street Journal (‘Super Angels’ Alight), there is a new breed of investor that fills the gap, the “super angel”.
What makes these angels “super” is their ability to attract other investors. Whether collaborating with one another informally or through recently-formed funds, they can invest $1 million or so and be satisfied with an exit a few months to a few years later.
Dana H. Shultz, Attorney at Law +1 510 547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
Recently I have received questions from entrepreneurs who are starting a second line of business. They want to know whether the new business should be under the same legal entity – perhaps with a separate fictitious business name (DBA) – or under a separate corporation/LLC.
This is not really a legal issue: Either approach can work just fine. The differences between the two approaches are business-oriented.
The advantage of using the existing entity is minimal additional paperwork or cost.
The advantage of creating a new entity is that it isolates the businesses from one another. If one of the businesses fails or has serious legal or financial problems, the other business will not be affected.
Only the entrepreneur can decide whether the ability to isolate the businesses is worth the cost of a second entity. I suspect that, for many entrepreneurs, the answer would be “yes”.
Related post: Should I form an LLC or a corporation?
Photo credit: Emil Bacik via stock.xchng
Dana H. Shultz, Attorney at Law +1 510 547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
You’ve started a new business. Don’t forget to apply for (and next year, renew) your business license!
Most cities (in some instances, counties) require that businesses located within their borders obtain what are commonly called “business licenses”. In reality, these are applications to pay business taxes.
Here are links to the applications for several of California’s largest cities:
Dana H. Shultz, Attorney at Law +1 510 547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
The evening of Wednesday, July 21, the Silicon Valley Association of Startup Entrepreneurs (SVASE) will present “Cleantech and Software: Where the Action Is“.
Event description: Historically, cleantech investment has been dominated by capital-intensive projects like alternative energy and biofuels, but with the credit crunch and economic downturn, capital is harder to come by. Cleantech software, on the other hand, has dramatically increased investment appeal due to low capital requirements and a cost saving value proposition for projects such as energy efficiency, carbon management, water conservation and e-waste recycling. Our distinguished panel will talk about what investors are looking for in cleantech software businesses and how you can successfully raise funds in today’s environment.
Panel members include VCs, cleantech experts and successful entrepreneurs.
Dana H. Shultz, Attorney at Law +1 510 547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
I have helped dozens of foreign companies establish subsidiaries here. Sometimes, the foreign company asks, “Do we really need to form a separate company in the U.S.? Can’t we just hire some people in the U.S. to work for our existing overseas entity?”
In responding, I make the following points:
- There is no requirement that a separate U.S. entity be formed.
- However, starting a new U.S. business is risky. There certainly will be financial obligations, and unexpected legal liabilities can arise. (Regrettably, anyone can sue anyone else for any reason at any time – and even if you win, there is a substantial likelihood you will have to pay your own legal fees.) So long as the U.S. entity complies with applicable formalities (please see Beware Your Alter Ego), it will act as a legal firewall to separate those obligations and liabilities from the foreign parent.
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Photo credit: Sharon Austin via stock.xchng
Dana H. Shultz, Attorney at Law +1 510 547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
Last November, I wrote You Can Have a Successful Business Even if You Don’t Have a Patent. Many of the points that I made in that post are reiterated in an article that will be published this summer in the Berkeley Technology Law Journal.
The article, “High Technology Entrepreneurs and the Patent System”, is available to registered visitors on this blog’s Downloads page. Among the findings presented in the article:
- Whereas life sciences companies see patents as critical, software and Internet companies rely more on copyrights and trademarks.
- Patents are used to reduce competition and to attract capital; they do not provide strong incentives to innovate.
- The major reason why companies do not apply for patents is that they are expensive to obtain and to enforce.
- Many companies find it is more important to be the “first mover” than to obtain patents.
Dana H. Shultz, Attorney at Law +1 510 547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
In an article published today (Start-Ups Get Free Chance to Pitch to Angel Investors), the Wall Street Journal discusses ways that startups cal pitch to angel investors without having to pay a fee.
Thrust of the article: Some angel investment groups require that entrepreneurs who need funding pay for the right to present their businesses for consideration. Organizations fighting the “pay-to-pitch” approach include Open Angel Forum and AngelList.
Related posts:
Dana H. Shultz, Attorney at Law +1 510 547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
The evening of Wednesday, June 16, I will moderate “Your Capital-raising Roadmap: Angel and VC Perspectives”, part of the Silicon Valley Association of Startup Entrepreneurs’ East Bay Series at the beautiful Crow Canyon Country Club (buffet dinner included).
Description of this event:
You dream of venture capital to turn your great idea into a huge entrepreneurial success. But even if venture capital is appropriate, other types of funding – such as bootstrapping, personal loans, friends and family, or angel investment – usually come first.
Our panel of VCs and angel investors will explain which types of funding are appropriate at each stage and and how those types of funding can be combined, over time, to maximize returns for both entrepreneurs and investors.
Dana H. Shultz, Attorney at Law +1 510 547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
The document Top Ten Intellectual Property Mistakes of Startup Entrepreneurs is available to registered visitors on the Downloads page.
Here are the ten mistakes that are discussed:
- Failing to use employee invention agreements
- Assuming that the company owns contractors’ work product
- Using another company’s license agreement
- Thinking that patents are the only IP that matters
- Filing a for provisional patent before the scope of the invention is clear
- Treating the federal government like non-governmental infringers
- Neglecting to identify and protect trade secrets
- Believing that “open source” means “no restrictions”
- Giving the “family jewels” to an overseas supplier
- Registering the wrong entity as the owner of IP
Related post: The Top Ten Legal Mistakes of Startup and Early-stage Companies
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
Dana Shultz is a business-savvy lawyer with in-depth knowledge of law, business, technology, and the needs of startup and early-stage companies. Located in the San Francisco Bay Area (Northern California), Dana develops close working relationships with clients based on a positive attitude and rock-solid dependability so he can deliver High-touch Legal Services® - thus the name of this blog.