McStartup

Naomi wrote:

I am starting a medical practice where I will be the sole owner and I will have several employees including other physicians. I am wondering if it would be better to be a c Corp with the intention of choosing s Corp status to avoid the double taxation on dividends or just do a LLC. Would the LLC mean a higher level of taxation?

For your situation, I would recommend finding good legal and accounting professionals to help you make this decision.  You will likely be wanting to have these local folks on hand anyway, as you focus on being a doctor.  There may very well be advantages one way or the other that apply specifically to medical professionals, so I'd ask some other doctors in your area for recommendations.

Both an S-Corp and an LLC should avoid double taxation, and for tax purposes are nearly identical. Generally I push people toward LLC's because they tend to be very easy to setup and maintain, but in your case again it's worth checking with someone who specializes in medical practices.  There could very well be tax advantages to a C-corp as well, so it's worth exploring all your options.

If you do get a solid answer, please come back to the site and let me know.  I'd love to have a good answer I can share with other medical professionals.

Jeff

Susie wrote:

I came across your website and found it really interesting. Am working for a start up right now and wondered whether you might be able to help...

8 months ago my boyfriend came up with an idea for a start up. For the first three months I worked on it part time with him along with another guy who was also part time. In January we both became full time and my boyfriend brought on another woman who was initially part time, then quit her job to become full time in February. My boyfriend made her CEO and Co-founder, and himself Co-founder. The other guy and myself are not co-founders but have been working on this full time since January and put a lot into the project.

We are about to close funding and time has come to split up equity. At the moment my boyfriend and the CEO as co-founders are splitting Founders Stock 50/50 and the other guy and myself will hopefully get some proportion of their stock. I have no idea what, as a non-found, but on the original team, unpaid and full time since conception, should be pushing for % wise.

I believe the official term for this is "a royal mess".  It's really imperative that you have an agreement on who is receiving what equity up-front, because it becomes awkward to have those conversations later.

There is no right answer to this question.  It depends on how many hours people are putting in, if people are putting up cash, what their work is worth on the open marketing, who is doing what, etc, etc, etc.

The one thing I can tell you is this:  However you split the equity, you need to set this up as either restricted stock or stock options.  In this way, if someone leaves, or doesn't work out and you have to part ways, they won't walk off with a huge piece of the company.

Take a look at this past article for some more information -- and there are several more here on the site (look at past articles and search for "founders" or "equity").  How to Structure Equity for the Founders

Sorry I couldnt' be of more help, but at least you can start with that article.

Jeff

Marusia wrote:

My friend and I are starting a retail business and want to go with a NY LLC. When we are up and running, developed a great product and are ready to raise money and go big, we will convert into a DE C corp.  The reason we want to go with a NY LLC are as follows...

You're all good here, I suspect.   I don't know the details of one state's LLC vs. another, so you should consult a lawyer for the good legal advice on this.  However in general, an LLC in your state is just fine.  If you are going to have investors, the I would suggest switching to a c-corp down the road.  Not necessary, but in my experience it's more flexible.  Likewise if you get into employee stock options and the like.

Either way for a startup getting off the ground, I usually recommend LLC and the state you live in should be just fine.

Jeff

Philip wrote:

Jeff, I have a business idea that I believe has great potential. Essentially it a website that I believe can attact a lot of traffic by providing a much needed service. Without getting into the details of my business idea, my question is this:  Where do I start?!?

The idea needs some software to be developed, some website design, multiple servers etc.. I have a technology background, but it has been a few years since I've done programming.

I have a full time job, a wife and a kid. My risk I can't lay everything down to chase this dream, but how do you suggest I get this off the ground?

You start with the phone.  The most important thing you can do at this point is to ask those people who are your potential customers what they think of your idea.  This is how you remove risk, identify the true pain points, figure out how appealing the service is, and determine how best to reach your customers. 

Obviously, I don't know what this specific service is, but either way, I am certain you need to start with the phone.  Even if this is some kind of mass-marketed web service, you need to have some live conversations with folks who are the would-be target audience.  Maybe you can make a posting on related websites and ask for this conversation and help.  Maybe you know who the targets are and can cold call them.  Either way, shoot to have 20 live conversations where you talk through your idea with the potential customers, and see where that leaves you. If you do that homework, I'd be happy to chime in with what you can do from there, but I suspect you'll already have that answer.

Right now, I'd say you have the cart in front of the horse.  Don't worry about how to implement the technology, or how to convince your wife that this is a good idea, or how to pay for the whole endeavor.  You need to start with the potential customers, and hear their feedback live on the phone.  (email won't cut it).

Good luck!

Jeff

Gary wrote:

I have seen your video on "How to write a Pitch Presentation" very very helpful. Thank you!  

I have heard horror stories of things going wrong with investors and the investor turning on those they have invested in. So my question to you is, "Are investors worth it in the end?"  I have been thinking about looking for an investor for a while, but I do have my doubts.

First of all, I apologize to everyone who has asked questions that have gone unanswered for so long.  Sometimes my day job gets the best of me.  LOL. 

So Gary, here's the thing:  You need to understand, with clarity, what the motivations, expectations, ideal outcomes, timeline, patience, and broader investment portfolio of your investors is, before you take their investment. 

I've seen many entrepreneurs (at least the inexperienced ones), make the assumption that the investors on "on the same side of the table" as they are.  This is made worse by investors who love to use the phrase "we're on the same side of the table as you".  LOL. 

Generally, yes, your investors want you to do well, and you want to do well.  That much is a given.  However you and the investor may have very different ideas as to what "well" means, and over what period of time you should be willing to wait before taking action. 

You need to know what the investors are looking for from the beginning.  It easy for me to say that, and it likely seems obvious.  Most entrepreneurs never ask the question though.

The other thing to consider is the type of investor.  An individual angel investor may well be more patient than a venture capitalist who may be under their own time-pressure with their limited partners.  Some angel investors may be very passive -- others will want to be in your face all the time.  You need to know if this is a small part of their investment strategy, or a big part of it -- you can imagine that this makes a big difference in how they view the investment and how prone to panic they might be.

In the end, yes, investors are usually worth it -- almost by definition, because if you are considering investment for the right reasons, it's because you *need* it to grow your business they way you want to.  Thus, if you don't get the investment, you can't grow the business the way you want to. 

Don't let yourself get spooked because of the "horror stories" you might have heard.  Seek out your investors if you need them, and take it upon yourself to do your homework on what makes the potential investor tick.  You are picking them as much as they are picking you.  It's silly but true that many entrepreneurs put 10x the thought and consideration into hiring an employee than they do into selecting an investor.  You need to know that investor like you would know your own spouse, and you should be as excited about bringing them onboard with you as they should be about making the investment.

I hope that helps.  I'm happy to go address some follow-up questions as needed.

Jeff