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Dimitry K., Esq.
Dimitry K., Esq., Attorney
Category: Business Law
Satisfied Customers: 1611
Experience:  Run my own successful business/contract law practice.
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I am opening a company, a startup. I need advise on options

Customer Question

Hello, I am opening a company, a startup. I need advise on options to open it in Delaware, C-Corp and how to distribute shares. I have an angel investor and I need to sign a contract. I want to make sure the angel is protected tax wise and me too
JA: Has anything been filed or reported?
Customer: I first opened, by mistake, an LLC. I will need to close it I believe I need to open a C-Corp instead
JA: Can you tell me what state the LLC is registered in?
Customer: Delaware too
JA: Anything else you want the lawyer to know before I connect you?
Customer: no
Submitted: 9 months ago.
Category: Business Law
Expert:  Damien Bosco replied 9 months ago.

Hello. My name is***** am an attorney. I will review your question. I may need to clarify facts first. I will answer & we can discuss issues.

Expert:  Damien Bosco replied 9 months ago.

Is there a reason why you want to switch to a c-corp?

Customer: replied 9 months ago.
Yes, to be able to give shares to my angel investor and future investors easily
Customer: replied 9 months ago.
The initial doc I have on capitalization is:
Customer: replied 9 months ago.
(a) The authorized capital of the Company consists, immediately prior to the Initial Closing, of:(i) [__________] shares of common stock, $[____] par value per share (the “Common Stock”), [________] shares of which are issued and outstanding immediately prior to the Initial Closing. All of the outstanding shares of Common Stock have been duly authorized, are fully paid and nonassessable and were issued in compliance with all applicable federal and state securities laws. [The Company holds no Common Stock in its treasury.](ii) [__________] shares of Preferred Stock, of which [__________] shares have been designated Series A Preferred Stock, none of which are issued and outstanding immediately prior to the Initial Closing. The rights, privileges and preferences of the Preferred Stock are as stated in the Restated Certificate and as provided by the Delaware General Corporation Law. [The Company holds no Preferred Stock in its treasury.]
(b) The Company has reserved [__] shares of Common Stock for issuance to officers, directors, employees and consultants of the Company pursuant to its [Plan Year] Stock [Option] Plan duly adopted by the Board of Directors and approved by the Company stockholders (the “Stock Plan”). Of such reserved shares of Common Stock, [__________] shares have been issued pursuant to restricted stock purchase agreements, options to purchase [__________] shares have been granted and are currently outstanding, and [__________] shares of Common Stock remain available for issuance to officers, directors, employees and consultants pursuant to the Stock Plan. The Company has furnished to the Purchasers complete and accurate copies of the Stock Plan and forms of agreements used thereunder.
Customer: replied 9 months ago.
I would like your advise on:
1) filling up the blanks above
2) Make sure me and my angel investors do not carry any crazy tax liability with this contract
Customer: replied 9 months ago.
The angel will invest $200,000
I want this angel investor to get 10% of the company, for this amount
The angel is asking for preferred shares
I am the sole founder, and there are not other investors for now
Customer: replied 9 months ago.
I plan to authorize 10,000,000 shares
Customer: replied 9 months ago.
Can you help me with that?
Customer: replied 9 months ago.
I also would like to leave a pool of options to purchases for future employees about 10% of the total authorized shares (1,000,000 options)
Customer: replied 9 months ago.
Expert:  Damien Bosco replied 9 months ago.

Hi Patrick: It would just be as easy with an S-corp to give them a membership interest. Plus the taxation is better: there is no double taxation like with a C-corporation. But I suppose your investor wants preferred shares. The form you provide seems is more of a template, which is fine but would have to be revised significantly. If you are looking for a drafting attorney to help you, it is best to hire one. If you already have an investor and are drafting documents, it is better to have the documents tailored made for you situation with an attorney. We cannot do that from Just Answer.

Customer: replied 9 months ago.
what I give you is part of a contract
Customer: replied 9 months ago.
I just need this section filled up properly, and making sense with numbers that represent what I described
Customer: replied 9 months ago.
making sure that with that done, tax will not be asked to the Angel, and the one for me to cover the franchise would not exceed $500
Expert:  Damien Bosco replied 9 months ago.

Hi Patrick: First, I want to state my last response should have said LLC and not S-corp regarding membership interest. With regard to your follow up request, Just Answer is not a law firm. We cannot draft documents for you. You need to hire an attorney to draft documents. Further, there would most likely would have to be some input from a CPA regarding any tax issues. My recommendation is that you use the service of an attorney who can spend time on making sure your documents are properly drafted, especially when someone is investing $200,000.00. It is worth the money to be safe rather than be sorry.

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