Loading...
Answers
MenuWhat is the best business structure for a tech company?
I have an LLC formed that I was planning on using as an umbrella corp for a few different business ideas, a couple of them are in the tech industry, and one is already started and is just a DBA. Would it be best to set each company up as it's own entity even if they all have the same team as my umbrella corp?
Answers
It depends :)
Financing:
When you're ready to start raising funds, C Corps (especially Delaware) are still preferred in the VC world although some angels are increasingly willing to invest in LLCs.
Risk:
When you're just starting off it's okay to have a holding LLC with DBAs. As you grow one or more of the ideas, you may want to separate out the risk so that if one company has issues it doesn't hurt the others. But it isn't necessary when you're early on. Once you add employees, cofounders, and/or investors, it's probably time. Your holding LLC could have equity in the idea and you could setup the idea as a C Corp. It's a good structure.
Also -- this ain't legal advice. Just general blahblahblah about legal structure.
Really good article from a fellow Seattle startup attorney here: http://www.startuplawblog.com/choice-of-entity/
This is a question I get frequently: Should I set up a new legal entity for each business I start.
When entrepreneurs are just starting or want to test a few ideas, they often group businesses under the same entity (or use a series LLC).
As soon as you can afford it (or if you have the money to start it correctly) you definitely want to have them each business in it's own legal entity.
This is primarily because of liability, financing and accounting reasons.
Liability
You want to maintain a proper corporate veil, distinct assets and liabilities.
Financing / M&A
Selling a company (moving assets, everything including domain, software, paypal, emails, etc.) is a mess if it is co-mingled with another business.
Accounting
Generally much easier if separate bank accounts, merchant accounts etc. This includes tax reasons but any sort of due diligence or audit will also be more difficult.
Partnership
Much easier to cut a deal with joint venture profit share or equity partnership if you can simply amend operating agreement or create a shareholders agreement and offer membership interest or shares to new person - without worrying about separating out other assets held by that same legal entity.
TL;DR : Generally better to have a separate and distinct legal entity for each business.
You could do a Series LLC which would allow you to set up multiple ventures while compartmentalizing the liability and risk.
Frankly if you don't have proof of concept you should incubate them all under the same legal entity. As you start to generate profit, raise money, etc. then you can look at creating a legal entity but the only people who benefit from the attitude that starting a company starts with forming a legal entity are the lawyers and accounts who get more work from the process. I've owned and operated 13 businesses in my day and had all kinds of other ideas I played with. So often I'd have an idea sitting maybe I'd have some meetings about it etc. but it would never go anywhere or would get pushed to the back. If I'd formed a company for each of these I would have wasted a ton of time and money. Start with market validation and get some customers first then create legal entities as they become something real.
The best business structure for a tech company are as follows:
1. Sole Proprietorship: In this business structure, one person is the sole owner. With this business structure, it is advisable to hire a good accountant to figure out what the best way is for you to reduce your taxable income. This business structure is a good option for start-ups because it is easy and inexpensive to register and the sole owner has direct control of all decisions. In a partnership business structure, two or more people combine their financial resources to put into their business. A partnership is non-incorporated, and all partners share the profits the business earns.
2. Corporation: This business structure is formed at the federal or provincial/territorial level and is a legal entity that is separate from its shareholders. Shareholders are not responsible for the company’s debts or actions. Most start-ups are not at the phase where incorporation is appropriate. Incorporation is beneficial because it has limited liability, transferable ownership, and greater tax advantages.
3. Co-operative: This type of business structure can be for-profit or not-for-profit and is owned and controlled by an association of members. Co-operatives are the least common business structure, and it is often used to provide access to common needs. However, the decision-making process is long as it is democratic, and there is extensive record keeping involved in maintaining this kind of business structure. No matter what kind of business structure you choose for your start-up, it is important to consult with a legal professional or experienced mentor beforehand to make an informed and intelligent choice. It is useful to know your goals, business plan, and your vision for your company and lay that out for those who are giving you guidance in the structuring process in order to help them help you choose the best business structure for your start-up.
Besides if you do have any questions give me a call: https://clarity.fm/joy-brotonath
Related Questions
-
how to start earning on clarity.fm
Most of the earnings come from the people you are in contact with. The platform is not that big at the moment but it can be earned. My recommendation is to create content on your private page web, facebook, instagram ... and leave a clarity link through your work. If you need extra help call me for 15 minutes.DB
-
What is a good/average conversion rate % for an e-commerce (marketplace model) for customers who add to cart through to purchase order.
There is quite a bit of information available online about eCommerce conversions rates. According to a ton of sources, average visitor-to-sale conversion rates vary from 1-3%. This does not mean the Furniture conversions will be the same. The bigger problem is that visitor-to-sale conversions are not a good data point to use to measure or tune your eCommerce business. All business have some unique friction factors that will affect your final conversion rate. It's very important to understand each of these factors and how to overcome them. The best way to measure and optimize is to take a conversion funnel approach. Once you have defined your funnel you can optimize each conversion rate to better the total effect. For example: Top of the funnel: - All web site visitors, 100,000 / month First conversion: View a product page, 50% of all visitors Second Conversion: Add to Cart, 10% of people who view products Final Conversion: Complete Checkout, 80% of people who put items in a cart In this example we see that only 10% of people who actually view products put them in to a cart, but 80% of those people purchase. If you can figure out why visitors are not adding items to their cart and fix the issue to increase the conversion rate, revenue should increase significantly because of the high checkout rate. You can use free tools like Google Analytics to give you a wealth of information about your site visitor and their behavior or there are some great paid tools as well.DM
-
What is a normal churn rate for b2b saas company with an average monthly revenue of $850 per customer? Is 10% of the total monthly sales high or low?
10% of the total monthly sales churning on an absolute basis is near fatal. That means that within 5 months, you have 50% absolute churn per year, which reveals fundamental flaws with the service itself. Anything above small single digit churn is telling you and your team that customers are not seeing enough value in your product. I'd start by doing as many exit interviews as you can with those that have churned out, including, offers to reengage at a lower price-point while you fix the issues that matter to them. Happy to talk through this in more detail in a call.TW
-
What is a better title for a startup head....Founder or CEO? Are there any pros/cons to certain titles?
The previous answers given here are great, but I've copied a trick from legendary investor Monish Pabrai that I've used in previous startups that seems to work wonders -- especially if your company does direct B2B sales. Many Founders/ CEOs are hung up on having the Founder/ CEO/ President title. As others have mentioned, those titles have become somewhat devalued in today's world -- especially if you are in a sales meeting with a large organization. Many purchasing agents at large organizations are bombarded by Founders/ CEOs/ Presidents visiting them all day. This conveys the image that a) your company is relatively small (the CEO of GM never personally sells you a car) and b) you are probably the most knowledgeable person in the organization about your product, but once you land the account the client company will mostly be dealing with newly hired second level staff. Monish recommends that Founder/ CEOs hand out a business card that has the title "Head of Sales" or "VP of Sales". By working in the Head of Sales role, and by your ability to speak knowledgeably about the product, you will convey the message that a) every person in the organization is very knowledgeable about the ins and outs of the product (even the sales guys) and b) you will personally be available to answer the client's questions over the long run. I've used this effectively many times myself.VR
-
What does it mean to 'grandfather you in' in the tech world?
It stands for allowing someone to continue doing or use something that is normally no longer permitted (due to changing regulations, internal rules etc.)OO
the startups.com platform
Copyright © 2025 Startups.com. All rights reserved.