Presented by from Tax and Legal Considerations for the IT Startup Jeff Strauss DISCLAIMER: These slides are provided for informational purposes only and.

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Presentation transcript:

Presented by from Tax and Legal Considerations for the IT Startup Jeff Strauss DISCLAIMER: These slides are provided for informational purposes only and should not be construed as an offer of legal advice or counsel. Consult a licensed attorney for advice for your specific needs.

Quick Bio (aka “Who is this guy?”) Jeff Strauss VP of ArchitectNow in St. Louis, Missouri Product development consultant for last 4 years Licensed attorney for nearly 10 DISCLAIMER: These slides are provided for informational purposes only and should not be construed as an offer of legal advice or counsel. Consult a licensed attorney for advice for your specific needs.

First and Foremost Most important thing you need to know: You need a lawyer – and I’m not him You need a tax accountant We’re a pain in the rear, but critical, especially at the beginning DISCLAIMER: These slides are provided for informational purposes only and should not be construed as an offer of legal advice or counsel. Consult a licensed attorney for advice for your specific needs.

GETTING STARTED: CHOICE OF ENTITY

Available Types of Business Entities Sole Proprietorships Partnerships (General vs. Limited) Limited Liability Companies (LLCs) Corporations DISCLAIMER: These slides are provided for informational purposes only and should not be construed as an offer of legal advice or counsel. Consult a licensed attorney for advice for your specific needs.

Sole Proprietorship and Partnership Sole proprietors are not really a “business” entity at all Partnership come in two flavors: general and limited Principal owners (or the GPs) have unlimited liability for company debts The GPs are “jointly and severally” liable DISCLAIMER: These slides are provided for informational purposes only and should not be construed as an offer of legal advice or counsel. Consult a licensed attorney for advice for your specific needs.

Limited Liability Company This is a “true” business entity, with filing requirements and formal docs Affords protection to all company owners By default, LLCs are considered “pass-through entities” for income tax purposes DISCLAIMER: These slides are provided for informational purposes only and should not be construed as an offer of legal advice or counsel. Consult a licensed attorney for advice for your specific needs.

Corporations As with the LLC, this is a more formal type of business entity There are C corporations and S corporations Both types allow payments of salary, but key differences May people fear the infamous “double- taxation” of C corps DISCLAIMER: These slides are provided for informational purposes only and should not be construed as an offer of legal advice or counsel. Consult a licensed attorney for advice for your specific needs.

C Corporations The most formal, traditional form of business ONLY form that allows: – Retained earnings – Multiple classes of stock ownership Unlimited losses, but unable to distribute to shareholders More difficult to maintain, but could be nearly mandatory for highly capitalized businesses, or those raising VC. DISCLAIMER: These slides are provided for informational purposes only and should not be construed as an offer of legal advice or counsel. Consult a licensed attorney for advice for your specific needs.

S Corporations Requires a special election (Form 2253) Hybrid between C corporation and LLC/Partnership Distinguishing factors are: – You cannot retain capital/earnings, BUT – You can pay yourself a salary Good for certain businesses, but rigid eligibility requirements DISCLAIMER: These slides are provided for informational purposes only and should not be construed as an offer of legal advice or counsel. Consult a licensed attorney for advice for your specific needs.

Federal Income Tax As far as the IRS is concerned, there are only 6 types of entity: – Sole Proprietor (Form 1040 Schedule C) – Corporation (Form 1120) – Partnership (Form 1065) – S Corporation (Form 1120S) – Trust (1041) – Non-Profit Organization (Form 990) DISCLAIMER: These slides are provided for informational purposes only and should not be construed as an offer of legal advice or counsel. Consult a licensed attorney for advice for your specific needs.

IP Holding Companies New and growing trend for some IT orgs: – You own a parent company – It then owns another entity, which owns the IP Advantages lie in both IP asset protection, for licensing ability, and for transferability DISCLAIMER: These slides are provided for informational purposes only and should not be construed as an offer of legal advice or counsel. Consult a licensed attorney for advice for your specific needs.

Other Considerations Transferability of ownership (i.e., dissolution concerns) Extent of protection of your personal assets Complexity of management and maintenance Special allocation and distributions (LLC only) DISCLAIMER: These slides are provided for informational purposes only and should not be construed as an offer of legal advice or counsel. Consult a licensed attorney for advice for your specific needs.

So which do I pick (pros and cons)? C corporation S corporation LLC (taxed as a partnership) DISCLAIMER: These slides are provided for informational purposes only and should not be construed as an offer of legal advice or counsel. Consult a licensed attorney for advice for your specific needs.

GREAT! UM… NOW WHAT?

Getting That Business Started Find a good lawyer and CPA! (Yes, really…) Form your entity (usually filing with SOS) Obtain EIN if required Draft org docs All set? Awesome, let’s get down to business! DISCLAIMER: These slides are provided for informational purposes only and should not be construed as an offer of legal advice or counsel. Consult a licensed attorney for advice for your specific needs.

Keeping Up Appearances: The “Corporate Veil” Your business is separate from you Open bank accounts Document transactions, including: – Capital contributions – Distributions and withdrawals Have meetings and take “minutes” when appropriate DISCLAIMER: These slides are provided for informational purposes only and should not be construed as an offer of legal advice or counsel. Consult a licensed attorney for advice for your specific needs.

Working with Clients What kind of engagement? For longer term relationships, consider: – Master Services Agreement – One or more Work Orders What happens when things go badly? DISCLAIMER: These slides are provided for informational purposes only and should not be construed as an offer of legal advice or counsel. Consult a licensed attorney for advice for your specific needs.

Speaking of Contracts: Who owns my work? “Work for hire” Reusable code and frameworks Copyrights and non-exclusive licensing (We’ll come back briefly to IP later.) DISCLAIMER: These slides are provided for informational purposes only and should not be construed as an offer of legal advice or counsel. Consult a licensed attorney for advice for your specific needs.

Growth and Expansion Your first employee… if ever… – Some companies, like ours, will grow over time – Others may always stay solo shops – Do what is right for you! Fair contracts and employee agreements Consideration of W-2 vs Restrictive covenants DISCLAIMER: These slides are provided for informational purposes only and should not be construed as an offer of legal advice or counsel. Consult a licensed attorney for advice for your specific needs.

Expansion and Succession What happens when you want to add partners? How do you protect your families, while also protecting the company? Do you have a strategy for an exit? Again, what if things go badly? DISCLAIMER: These slides are provided for informational purposes only and should not be construed as an offer of legal advice or counsel. Consult a licensed attorney for advice for your specific needs.

A Quick Bit on IP Law Intellectual Property generally includes: – Copyright – Trademark – Patent DISCLAIMER: These slides are provided for informational purposes only and should not be construed as an offer of legal advice or counsel. Consult a licensed attorney for advice for your specific needs.

QUESTIONS? COMMENTS?

Jeff Strauss x DISCLAIMER: These slides are provided for informational purposes only and should not be construed as an offer of legal advice or counsel. Consult a licensed attorney for advice for your specific needs.