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Question: What is the correct legal entity for a startup currently based in Israel but building a SaaS product serving the US market? Should they incorporate in the US first, or in their locally? Answer: There is no “correct” legal entity choice here really. The particular tax circumstances of the Founders of the entity, and [...]
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Question: Can you deduct business expenses before your company has revenue? If so, what business expenses are deductible? Answer: Apart from organizational expenses of the business which will be capitalized (e.g., which constitute part of the “tax” investment in the company and are recoverable through depreciation, amortization and/or sale of the business) you most certainly [...]
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Question: Is there a “tax attractiveness” difference with respect to an acquisition if the company being sold is a corporation or an LLC? Answer: From an acquisition tax attractiveness perspective, while sale of a regular C corporation (as compared to an LLC that elects treatment as a partnership for tax purposes) would generally be considered [...]
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Question: At what stage should startups incorporate? Answer: The short answer to this question is that a startup should incorporate (or work through a limited liability entity) as soon as it commences commercial operations. Commercial operations begin with the first activities that are undertaken by the business, even if they are not revenue generating in [...]
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Question: I’m an independent consultant focused on working with early stage startups in exchange for equity. What’s the best way to structure equity-based compensation with nascent/small companies? Answer: I believe the best way to structure this type of compensation is to receive an option to acquire shares of the startup at an exercise price that [...]
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Question: Are there any benefits to registering as an INC vs. LLC in terms of attractiveness to future investors/acquirers? Answer: Although there are a number of reasons for entrepreneurs to organize their companies as LLCs (e.g., tax planning; avoidance of double taxation on profits—at the entity and the personal level), there’s one very important reason [...]
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Question: What are the most tax effective ways for founders to “Pay themselves” for efforts in a startup after the initial startup share allocation round. Is there a more effective method apart from options? Answer: Well, option grants are a tried and true method of post-funding Founder compensation, but not all options are created equal. [...]
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Question: Is it legal and acceptable for a start up to receive donations from fans or well wishers through its website to fund business operations? For example, having a donation section which enables fans to send donations via checks or accepts credit card payment from the website or paypal account. Are there tax implications? Does [...]
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Question: What are the advantages and disadvantages of convertible debt vs. equity? Answer: As we’ve discussed in previous postings, I am very much in favor of the convertible note scenario for non-institutional rounds of financing. To recap, the convertible note structure replaces the sale by early stage companies of equity securities, at a set valuation [...]
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Question: What legal language does a typical disclaimer on a website have to have? (For review websites, product or business reviews.) Answer: The type of disclaimer to be used on a web site is a very fact sensitive issue. You must first establish the nature of the transactions taking place on the website, and then [...]
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