Legal Question in Business Law in California

Re: LLC, S, C, CORP for online database search website

I have a Startup Law 101 Series of tutorials for founders and entrepreneurs on my website that may help with some of your questions. (www.grellas.com/faq_business_startup.html)

An LLC tends to work best if your goal is utter simplicity in the setup, i.e., a low-maintenance, easy-to-set-up vehicle.

Unfortunately, if you do this and simply grant membership interests to one another, you will have a problem if someone walks off with substantial equity and contributes little or nothing to the effort.

Therefore, with a founding team, "restricted stock" is normally best - that is, stock that effectively imposes vesting requirements on the founders.

For this purpose, a corporation is best. (See the discussion at www.grellas.com/faq_business_startup_006.html).

Setting up in Delaware offers no particular tax advantages and may pose special problems, though Nevada may be an option for tax advantages if you can have a real presence there. If you don't have a real presence there, you will not get the tax advantages and you will make your setup needlessly complex.

See also www.grellas.com/faq_business_startup_001.html for the various things you need to consider with a startup with a founding team.

Hope this helps. Startups are actually quite specialized - make sure you work with a lawyer who knows the field well.

Re: LLC, S, C, CORP for online database search website

Your question on which form to use for your tax needs to be answered by your tax expert, not your attorney. Generally a 'standard' corporation for this purpose would be a 'C' for the time being, and later can be changed as necessary if you ever reach the point of going public. More important to you are the bylaws and shareholders agreements necessary between the parties. If serious about getting legal help, feel free to contact me.

Re: LLC, S, C, CORP for online database search website

(1) Regarding your online ideas, I have specific experience in that area of law; (2) I would ask you what exactly being an on-line company means to you because it affects the tax question; (3) Delaware has an advantage for certain LLCs unless you're having to register in a foreign state (e.g. California) and pay the taxes anyway (see question 2); (4) Please get together a great set of Bylaws (corporation) or Operating Agreement (LLC) to protect the relationship you have with your business partners. Instead of the stock documents provided by many online entity formation companies, an attorney will find out about your business and how to create an exit strategy, etc that suits your needs. I enjoy working with new businesses and often try to work out a budgeting plan so you can get the legal help you need within your start-up constraints. Best of luck!