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Dwayne B.
Dwayne B., Attorney
Category: Legal
Satisfied Customers: 32319
Experience:  Began practicing law in 1992
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Becoming an equity owner in a startup, avenues

Customer Question

Becoming an equity owner in a startup, avenues for tax advantagement.
I am a PA resident who will becoming an equity owner in a TX charted startup. Let's call this WebTX.
I currently operate my own LLC. Let's call this MyLLC.
I could consider opening a DE corporation, or other state based corporation. Let's call this DeCorp.
First question: can the equity be owned by a corporation and not myself as a person? I would have to assume yes, but is this impacted that I will be an active and direct software contributor to WebTX and NOT merely an advisory partner or financial backer acting in a more passive role
Assuming the answer is YES, the equity can be held by a non-person entity that i fully control.
Second question: would there be any reason at all for this to be held by MyLLC instead of myself as a person?
Third question: what benefits would there be holding this equity in DeCorp? Is there any specific state that would be a clear winner in holding this ownership over DE? I do see value in DE being in such a near proximity to PA but am not specifically tied to DE for any reason.
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I understand the field of taxes and business planning is an extremely complex and infinitely deep rabbit hole. I do not expect a detailed plan to be provided to this response.
What I am seeking is confirmation that there is a reasonable avenue to explore or that there is no way to gain from being a "regular joe" and not an army of corporate lawyers. If there is a viable path, for brief information, terminology, examples that would allow me to direct my own personal research into these matters in-depth.
Submitted: 5 months ago.
Category: Legal
Expert:  Dwayne B. replied 5 months ago.

can the equity be owned by a corporation and not myself as a person?

Generally, yes. However, you may want to talk to a TX lawyer about a Family Limited Partnership. There are a lot of advantages to that type of organization owning the shares in a corporation.

would there be any reason at all for this to be held by MyLLC instead of myself as a person?

No, not generally. If you declare it as an S Corp then you won't get double taxed. The more levels you put between you and the ultimate company the better.

what benefits would there be holding this equity in DeCorp? Is there any specific state that would be a clear winner in holding this ownership over DE?

None of the states have a huge advantage over the others any more. Everyone used to choose Delaware because it was very corporate friendly but most other states have started doing that as well. Texas, of course, doesn't have a personal income tax. What you really need to do is sit down with a lawyer and let them evaluate your business and tell you what state is best based on what type of work you do and the products you will sell, etc.

If your question has been answered then I'd offer my best wishes to you and ask that you please not forget to leave a Positive Rating so I receive credit for my work.

Of course, please feel free to ask any follow up questions in this thread. I want to be sure that all of your questions are answered. In addition, once you issue your Positive Rating the question will lock open and no longer time out so you can come back to it anytime in the future if you think of any follow ups.

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