Explores the topics: - When should I form a company? - What entity should I use – LLC or corporation? - Where should I incorporate – Delaware or New York? - Should I use lawyers or do it myself?

1. Harlem Biospace Seminar: Formation
Jen Berrent
Daniel Doktori
January 27, 2014
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2. Formation
Topics
 When should I form a company?
 What entity should I use – LLC or corporation?
 Where should I incorporate – Delaware or New York?
 Should I use lawyers or do it myself?
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3. When should I form a company?
Benefits of Incorporation
 Limitation of liability
 Issuance of equity
– Founders
– Advisors and consultants
 Ownership of intellectual property
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4. What entity should I use?
Overview of Structures
 Corporate Form
– Partnership
– Limited Liability Company
– Corporation
 Tax Treatment
– “Pass-through”
– No “pass-through”
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5. What entity should I use?
Partnership
 Tax: “Pass-through” tax treatment
 Liability: Not all owners have limited liability
 Flexibility: Flexible structuring
 Owners: No limit on number or types of owners
 Investors: Not an investor-favored form
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6. What entity should I use?
Limited Liability Company
 Tax: “Pass-through” tax treatment
 Liability: All owners have limited liability
 Flexibility: Flexible structuring
 Owners: No limit on number or types of owners
 Investors: Historically, not an investor-favored form
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7. What entity should I use?
Subchapter S-Corporation
 Tax: “Pass-through” tax treatment
 Liability: All owners have limited liability
 Flexibility: Extremely rigid structuring (only one class of equity)
 Owners: Limit on number or types of owners
 Investors: No practical way to take investors
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8. What entity should I use?
Subchapter C-Corporation
 Tax: No “pass-through” tax treatment
 Liability: All owners have limited liability
 Flexibility: Rigid structuring
 Owners: No limit on number or types of owners
 Investors: Investor-favored form
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9. LLC v. Corporation
LLC
C-Corporation
 Best for small number of
shareholders where flexibility in
structuring is a key benefit
 Good for companies with cash
flow that will be distributed (e.g.,
investment funds, service
companies)
 Good for companies that do not
care about retaining net operating
 Best for companies looking to
raise money and scale quickly
 Good for compensating
employees, consultants and
advisors
 Allows for the use of net
operating losses
 Must be a c-corporation to go
public
losses
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10. Where should I incorporate?
Delaware
 Best known corporate law
– e.g., few New York lawyers know NY corporate law!
 Most reasonable and flexible corporate rules
– e.g., NY corporate law requires unanimous consent for
stockholder actions not taken at a meeting
 Better liability protections for stockholders
– e.g., top 10 stockholders in NY corporations are liable for unpaid
wages
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11. Should I use lawyers or do it myself?
Use lawyers unless you are forming a single-member
limited liability company
 Need to be careful of many legal regimes
– Corporate law
– Tax law
– Securities law
 Lawyers are less expensive and more accessible than you
think
Wilmer Cutler Pickering Hale and Dorr LLP is a Delaware limited liability partnership. WilmerHale principal law offices: 60 State Street, Boston, Massachusetts 02109, +1 617 526 6000;
1875 Pennsylvania Avenue, NW, Washington, DC 20006, +1 202 663 6000. Our United Kingdom offices are operated under a separate Delaware limited liability partnership of solicitors
and registered foreign lawyers authorized and regulated by the Solicitors Regulation Authority (SRA No. 287488). Our professional rules can be found at www.sra.org.uk/solicitors/codeof-conduct.page. A list of partners and their professional qualifications is available for inspection at our UK offices. In Beijing, we are registered to operate as a Foreign Law Firm
Representative Office. This material is for general informational purposes only and does not represent our advice as to any particular set of facts; nor does it represent any undertaking to
keep recipients advised of all legal developments. Prior results do not guarantee a similar outcome. © 2014 Wilmer Cutler Pickering Hale and Dorr LLP
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