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Seven Tips on Forming Your New Startup From Silicon Valley Lawyer Louis Lehot

Louis Lehot articulates why taking your company from a great idea to a successful business starts with choosing the most appropriate legal structure at formation. When structuring your new business, there are many considerations when choosing between a sole proprietorship, S-Corp, C-Corp, or LLC. Each option comes with unique attributes from a corporate, taxation, employment, commercial and investment perspective that must be factored into your selection.


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Louis Lehot

2 years ago | 3 min read

 By Louis Lehot and Alex Ravski

When starting your own business, it takes more than just one great idea. The way in which you choose to form your company can be critical to its future success. 

If you're looking to structure your new business and you're choosing between a sole proprietorship, S-Corp, C-Corp, or LLC, there are several considerations. And every option comes with its own positive and negative aspects that must be factored into the final decision-making process.

First, let’s take a look at key that should be examined when forming your company and how they impact the choice of structure.

The price of registration will be similar no matter which option you choose, but each structure has a different cost to form and maintain. A sole proprietorship is the cheapest and easiest to form as well as to maintain. So, this is not surprisingly the most popular choice. Meanwhile, a corporation will cost more to form and operate, but this option offers a relatively low startup cost. And an LLC is the more expensive option to operate due to the cost of compliance. Although startup and operation costs are important, they should not be the only factor driving the decision.

When choosing a company structure, legal liability is one of the most important issues to consider. Your personal liability depends on the structure you choose, so you need to evaluate the risk associated with the business and the level of protection each structure provides. For example, a sole proprietorship does not offer protection against liability, so if the risk is determined to be high, this is not the right option. An S-Corp or C-Corp provides a lot more protection for shareholders, and an LLC offers the most liability protection for owners.

Tax implications of a company structure can also be complex, and it's important to have a throrough understanding of each. A sole proprietorship isn't a separate legal entity from the owner, which means the income earned is passed right to the owner’s personal income tax return without a separate tax return. Corporations and LLCs are passed through entities, so business income is passed on to the shareholders,, and removes the need for separate business income tax. As it relates to a C-Corp, there are taxes at the entity and shareholder level, but for a S-Corp, there are typically no federal income taxes at the entity level. And for S-Corps and LLCs, income is taxed at the shareholder or member level regardless of cash distributions.

When it comes to an S-Corp, C-Corp, or LLC – all of these options allow companies to offer employee equity awards, but equity awards must be structured differently for an LLC and can be complicated. An S-Corp is restricted to issuance of one class of stock as they cannot issue preferred stock to shareholders, and are limited in the number and type of shareholders. S-Corps can't have more than 100 shareholders and have to be individuals, estates, or trusts. An LLC provides more flexibility regarding number of members, and can issue several classes of stock. This option can also be harder to find investors for because of the tax and regulatory issues associated with the structure.

Making this kind of decision on your business structure is a highly complex one. So, legal and tax guidance along the way is essential to making the right decision for you and your company.


About the authors: 


Louis Lehot:

Louis Lehot is a partner and business lawyer at the international law firm, Foley & Lardner LLP. Louis operates from three of the firms’ offices based in Silicon Valley, San Francisco, and Los Angeles. Louis Lehot is a member of several teams and groups in the firm such as the Private Equity & Venture Capital, M&A and Transactions Practices, and also the Technology, Health Care, Life Sciences, and Energy Industry Teams. Louis Lehot assists and advises his clients at all stages of their career, guides them to achieve hyper growth, go public, and obtain optimal liquidity events through an array of legal and business instruments, processes, and strategies. He has experience in handling a number of high tech cases in different fields, and is known to be one of the leading corporate lawyers in the San Francisco and Silicon Valley area. He is likewise acclaimed by his peers and press. The Chambers of USA quoted “Louis Lehot is known for the high quality of his advice, his responsiveness and passion for his clients.”


Alexander Ravski:

Alexander Ravski is special counsel with Foley & Lardner LLP, based in the firm’s San Francisco office, where he is a member of the firm’s Transactions Practice.




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Louis Lehot

Louis Lehot is a partner and business lawyer with Foley & Lardner LLP, based in the firm’s Silicon Valley, San Francisco, and Los Angeles offices, where he is a member of the Private Equity & Venture Capital, M&A and Transactions Practices and the Technology, Health Care, and Energy Industry Teams.


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