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    4 Replies Latest reply on Mar 8, 2008 7:08 PM by Uncle Leon

    Business structure and maintaining ownership

    DJM0231 Wayfarer
      My current business is a LLC which was fully self-funded. As stated in a previous thread, I'll be closing the doors and starting a new business.

      I would begin as a LLC, within a year I would like to open up to external investors. What would be the most efficient business structure to open doors for external investors while maintaining ownership of the company?

      I can't remember where I read that an S-Corp would be most efficient because of the simplicity of selling shares and offereing "stock options" to employees. By doing this wouldn't I be risking losing ownership of the business?
        • Re: Business structure and maintaining ownership
          LUCKIEST Guide
          Business structure and maintaining ownership.
          Every business person should have an Accountant, a Lawyer,
          an if needed a Insurance Agent.
          This is a great question for a Professional (like YOUR Acct or Lawyer).
          You would maintain ownership of the company as long
          as you have (or control) more than 50% of the stock.
          Good luck, LUCKIEST
          • Re: Business structure and maintaining ownership
            Lighthouse24 Ranger

            Outside investors generally insist on preferred stock, so companies that are seeking angels or VCs tend to be organized as C-Corps (I suppose you could revoke an S-Corp election and revert back to a C-Corp before you sought outside investors). You mentioned wanting to offer stock options for employees -- that would actually be less complicated for a corporation than it would an LLC.

            Hope this helps. Best wishes.
            1 of 1 people found this helpful
            • Re: Business structure and maintaining ownership
              ccurtin Newbie
              Smaller businesses often use "phantom stock" as an incentive tool for employees. This way if things change (they always do) you don't have to worry about being partners with someone you don't want. After a sufficent period of time, you could convert their phantom stock to real shares.

              S Corps (or an LLC being taxed as an S Corp) are the simplest and the most cost effective for companies under $5mm in sales for the most part. When you do your Exit Strategy one of the days, double taxation is not a problem as in a C corp.

              Good Luck,

               

              Chris Curtin
              www.bankersadvocate.com
              1 of 1 people found this helpful
              • Re: Business structure and maintaining ownership
                Uncle Leon Tracker
                IMHO, I don't believe an LLC is a good structure for this situation.

                If you plan to have a small number of investors (I believe the magic number is 100) an "S" corp is probably your best bet. If you think you may have more investors, or your success may open the possibility of am IPO on the open market, a "C" corp is probably best.

                The most important addition to this post is to tell you that:
                1. I'm not a lawyer.
                2. You NEED one.