Why your startup should be a Delaware C-Corp, not an LLC | Hacker News Reader

Why your startup should be a Delaware C-Corp, not an LLC

launch.gust.com

273 pointsandrew_gust169 comments

Gust spends no time talking about what happens when you try and sell a C Corp. If it's a stock sale great... if it's an asset sale, incredibly not great... you will have double taxation.

This matters. $10M paid to the company for an asset, turns into $6.5M after 35% corp taxes (using general numbers) and then $6.5M than distributed to shareholders, assume 30%+ (20% + state taxes + AMT (for now)) so $6.5M is now $4.55 after taxes aka 55% paid in taxes.

Given that info just do a stock sale right? Not so easy - not all acquirers want to buy an entire company, that comes with all the liability when sometimes it's just an asset they want with no liability. Often times purchase price is lower for a stock purchase with implied liability, also amortization for the acquisition works differently and an asset purchase again can be more favorable for an acquirer (and sometimes a higher purchase price).

Thank you for writing this. It's incredibly important and basically no one talks about it.

I can only reiterate what you've said: - Selling your company in an asset sale as a C-Corp increases your taxes 20-30% or more - Unless you're a BFD and have tons of inbound acquisition interest, the acquirer is going to dictate whether it's a stock sale or an asset sale, and they will almost always want an asset sale (less liability for them) - You should only be a C-Corp in the first place if you're a venture backed startup. Start with an LLC and just do a conversion to a C-Corp when you raise money; this maximizes your optionality.

One of our early investors insisted we transition to a C-Corp "for tax purposes". We were later acquired via an asset sale. The acquirer refused to do a stock deal. We ended up paying an effective 61% tax rate federal+state on the exit. I really wish we would have stayed an LLC.

However, all of Gust's points are valid if you successfully negotiate a stock sale.

Start a company today, and if you're lucky, you'll sell it no sooner than 5 years. In that case, you'll most likely qualify for QSBS, which means you'll pay an effective rate of 0%. Only available for C-Corps. You're welcome.

To expand on this as it's an important point and QSBS is the reason why VCs love C Corps... the deduction is the a HUGE benefit but also thanks to our tax system the deduction % is not static...

The % deduction you can take is entirely dependent on the year and sometimes month of when your stock is issued. For example we had C Corp stock issued in February 2010 so our FEDERAL deduction was 75% NOT 100% which it would have been if it was issued in November of the same year (Blah), also California no longer has the QSBS deduction so you still pay the 8%+ here.

After reading all the comments about C Corp vs. LLC, I am thinking to start my business as LLC and when the time comes that business is on the right track and I have investors willing to invest, convert the LLC to C Corp at that point.

I live in New Jersey. My startup is e-commerce business which will deliver goods to anywhere in US. And initially I will not need any physical office - I will run my business from my home. It will require for me to ship goods from my garage, but I will not have employees or office until at least a year, if the business succeeds.

My questions: 1) Do I need to establish my startup in Delaware or is it enough to just register it as LLC in New Jersey? 2) If some of you say I should register in Delaware, then my question becomes do I need to register NJ as foreign qualification as well? Or is that ok to just have Delaware only until I need an office space and have employees in NJ - only at that time establish foreign qualification in NJ.

I have made some research but not clear to me if it is safer to establish the NJ LLC as foreign qualification (in case I am recommended to establish the business in Delaware) even if I run the business initially from home but provide my service to customers across US.

I appreciate any advise.

Dumb question, but why not sell the asset to a newly formed corporation without the liability issues, then sell that corporation?

Conversion is treated as a taxable event. If you claim the IP is worth $0 but sell it two days later for $10M, you're going to have problems.

So, if I own a corporation that buys an asset for $500,000, then I turn around and sell the corporation for $10,000,000, I'm in some kind of hot water?

Depends. If the asset is digital, you can register the corporation in a tax haven through a offshore broker (Cayman, Panama, or St. Kitts), acquire the asset and then turn around and sell the corporation.

You can always "sell a corporation." It is not necessary to go to a tax haven.

I think you missed my point, which was that if I own a corporation and it buys an asset, then I sell that corporation, are these things tied together?

If the corporation simply found a deal, then the owners of the corporation chose to sell, why would the corporation (or owners) get hit with a gain on asset (purchased by corporation) tax? The shareholders should be taxed as normal gain on assets (shares) and it should not be reflected in the taxes paid by the corporation, unless I am missing something.

Why don't US companies just employ a 'double Irish' on all their IP?

Edit: I mean from inception/company formation. Wouldn't that save you all the aforementioned headaches? Especially when the time comes for an exit to happen.

Hi, this is David S. Rose, CEO of Gust. Thanks for all these interesting comments. The reason we don’t spend time talking about selling a C corp is because pragmatically it is irrelevant to what we’re doing. Gust Launch is designed for a very specific type of company that makes up a small subset (in fact, less than 10%) of all new businesses. We designed it to handle the specialized case of a startup that is being established from the very beginning to be a scalable, high-growth venture (the kind of company my book ‘The Startup Checklist’ was written for.) This type of business is founded with the intention of raising funds from outside investors such as angels or VCs, the intention of providing most (or all) employees with equity in addition to cash compensation, and the intention of exiting through either an M&A transaction or an IPO within five to ten years.

For many (if not most) other types of businesses, particularly companies that are going to remain as small- to mid-size, cash generating, businesses that will not require a lot of capital investment, incorporating as an LLC in their home state makes a lot of sense. But for the high-growth startup seeking investor funding, incorporating as a Delaware C corporation is without any question whatsoever the most appropriate, least expensive and most standard way to incorporate.

There certainly are tax differences in the treatment of an asset sale compared to a stock sale. But for the kinds of startups that should be using Gust Launch, that is invariably not an issue, because for those businesses an asset sale generally means a bad exit. In fact, in my entire investing and entrepreneurial career, spanning literally hundreds of companies over two decades, I have never once seen a positive M&A scenario in which the acquirer demanded an asset sale. Instead, most target companies forced into asset sales are being sold for less than their basis and less than the liquidation preference or convertible note balance, so the question of tax on asset gains or liquidation distribution simply does not apply.

@GoRudy is correct that in the subset of acquisitions where there is a gain for the target company, it is highly disadvantageous for the target company's shareholders to structure the transaction as an asset purchase. Realistically, they would be getting a lousy deal, but that would have been caused either by the company not being worth much, not negotiating well, or because it has incurred some troublesome contingent liabilities.

The few times I've seen asset purchases with unfavorable tax treatment, the CEO had signed the highest dollar term sheet offer (or the only available one), and they were either oblivious to the tax implications or else the acquirer did not even mention the form of transaction until starting to negotiate the definitive documents. Companies in that position should absolutely negotiate hard for a stock acquisition, a higher price, or carefully work out some other more advantageous tax structure.

But ultimately there's a more general point to be made here. Startups—and the investors who fund them—optimize for growth and financial upside, not to limit downside or engage in complex tax planning that would limit opportunities.

If you create an LLC structure that generates 20% higher after-tax proceeds in the case of an early exit, but substantially lower proceeds in a successful exit because of (1) the Qualified Small Business tax deduction being unavailable, (2) the requirement to make tax distributions and pay income tax along the way, and (3) making the company generally unfundable, you're setting your company up for failure, not success. Put another way, if you knew at the start that your company were heading for an asset sale, you probably shouldn't be doing it in the first place, and for sure no one else should be investing in it.

We—and the majority of people who work with successful startups—have a similar attitude towards starting a business as an LLC and then reincorporating as a C corporation—at a cost of many thousands of dollars—only if and when the company shows promise. That's like refusing to quit your day job until you know your company will succeed. It's understandable, and might even make sense in some cases, but it limits your odds of success and is telegraphing that you are accepting defeat before even getting started.

[BTW, for those founders concerned about double taxation during the early days of a startup, there’s a way to have your cake and eat it too: incorporate as a Delaware corporation and file a “Sub-chapter S” election with the IRS. That will give you all the benefits of the corporate structure (other than QSB eligibility) but also provide the one level of taxation/pass-through treatment that you would get with an LLC. Note that the requirements for sub-S election are: one class of stock (ie, no investors with Convertible Preferred), only individuals as stockholders (no LLCs, corporates or investment SPVs), and only US-based stockholders.]

It seems a great pity that the US doesn't have a dividend imputation system.

You can divide equity and issue incentive equity compensation at an LLC easily --- for less money than it takes to properly incorporate a Delaware C Corporation. We have an LLC with multiple classes of stock and vesting, and it took just a 20 minute call with our lawyer to get there. Our last company, Matasano, was an LLC for its entire lifespan (we eventually filed taxes as an S-Corp, but never reincorporated). LLCs work just fine.

You'll need a C Corp when you raise funds. But if you're not doing that right now, it takes less than an hour to get a Delaware LLC on the Internet, and you might as well just do that.

Many states require that you file as a foreign LLC if you've filed in any other state, which basically will double your paperwork. IMHO / IANAL, but it probably makes sense for most folks who don't care to raise money to just file as an LLC domestically within their own state.

100% agreed.

I have multiple LLCs, one of which I hope to grow into a potentially venture-back-able startup one day. If we get to that point we can create a C corp then. The amount of hassle and money you save now is well worth the headache of fixing things later.

It's actually pretty easy and the difference in cost between LLC and C-Corp isn't substantial (if you use Gust Launch it's all included in the $199-$239 monthly) but either way, since the double-taxation mostly doesn’t apply to high-growth businesses that reinvest capital instead of paying it out, there isn’t actually much difference in tax burden, and what there is is significantly outweighed by cost of converting to a C-Corp later.

A past comment from your profile included "Andrew from Gust" within it on a submission about Gust. [1]

Please update your HN profile to disclose any affiliations you have with Gust.

[1] https://news.ycombinator.com/item?id=13196766

Even though I think they're always meant in good faith, comments like these are virtually never helpful on HN. If you have something interesting to say about someone's affiliation, say it; otherwise, it's probably best to leave it alone.

It was very clear to me and I assume many other people that this user was associated with the article.

With more than a handful of upvotes and my past experience dealing with similar situations, it's neither obvious, nor unreasonable.

Beyond that, while it's clearly at your option, as far as I'm able to recall anytime you've had a submission related to you pop-up on HN you've disclosed your affiliation.

Why bother? It's right in his username.

"Andrew Gust" is a real name, there's zero reason not to disclose the affiliation, and the fact he himself has disclosed it before points to him understanding it's potientally not obvious.

Figured it was obvious from the username, but I'll put it in my profile as well. Sorry if that was confusing!

> it takes less than an hour to get a Delaware LLC on the Internet

Setting LLC's up is easy (even setting up a C-Corp is considerably easy) but for me the problem is always to maintain it and file taxes and other stuff on time etc. Is there any startup/service that helps me solve that problem?

Gust Launch, which is the product attached to this blog post, makes it extremely easy and quick to file as a Delaware C-Corp and set up the company, then follows it up with bookkeeping/accounting, equity management, and, yes, tax support. Among other things.

LegalZoom has a compliance calendar feature and it tries to warn you of (some?) impending deadlines.

It's best not to rely on a third party to do the work for you, though, since their errors could end up costing you a lot of money in fines.

posting to watch. I know similar services on the old continent but there's no point in startupping in europe, it's just a mess all-around

You sound like you have experience running startup(s) in Europe. Can you be more specific here?

I spent about well less than an hour getting an LLC registered in Oregon. All online too. Pretty impressed with the state for how smooth the process was.

It's pretty quick to set up a C-Corp too—it's much, much more annoying to change the LLC into a C-Corp when you do want to fundraise.

This is not true. It's very easy to convert from LLC to C corp but not vice versa. As a general rule it's easy to go from flow-thru entities to tax paying entities but not vice versa. This asymmetry of irreversibility, combined with the fact that most startup exits are asset, not stock, sales, makes the thesis of your post incorrect.

Sure, as a general rule, but conversions from LLCs to C corps can get very complicated as well in short order, especially when there have been different types of equity issued to founders/employees (e.g. profits interests, convertible notes, etc.). If the cap table is sufficiently large, it can cause ballooning legal costs pretty quickly. Not outrageously so, but companies can expect at least a few thousand to get added to the bill.

... which is roughly how much money it'll cost to have a good lawyer carefully set up a C-Corp for you.

Yup. Noting also that incorporation costs are generally a fixed ceiling, whereas the conversion costs are a likely minimum. ;)

This is exactly the part of the process that the first iteration of Gust Launch solved. All the paperwork for incorporation and company formation are streamlined and pretty easy to fill out, and included in the monthly cost. So conversion is much, much more expensive.

So it's "a few thousand" when/if the need arises vs, at a minimum, $2.4k/yr definitely.

That doesn't sound clear-cut at all.

The subscription cost isn't for the incorporation and formation. Being a Delaware C-Corp is just a prerequisite for users, so we include it as the first step.

I've never done that, but that's not the advice I've gotten from lawyers. In particular, what I've been told is that C-Corp or LLC, there's going to be annoying conversion work at your first VC round.

I just went through this. Started as LLC with co-founders. Once we started seeking money we up-scaled to C-Corp - give the lawyer a few bucks, wait a week, sign some stuff. Mostly painless.

Going to a C-Corp too early can be costly, moving up from a proven model LLC is easy, limits cost and risk

Why not use Clerky? It's about a grand all-in, and since YCombinator uses them for all their incorporations, it's what all your investors are likely to expect.

Because it generates a Delaware C-Corporation, and a DE C costs more annually to operate than an LLC. Among other things, most small business operators want pass-through taxes.

Do you have any opinion on a pass-through Delaware S-Corp vs LLC?

Hmm, I'm not sure that's accurate. What would you be converting to if your company was already a C-Corp?

A C-Corp with the structure your venture capital firms expect.

There may be more structure required but starting off from a C corp obviates the need to transfer control of assets (particularly intangible ones like copyrights to source code).

You're paying a substantial amount of money up front to hypothetically mitigate a hypothetical future expense that only occurs at the point where cash flow (at least on the order of "covering legal expenses") stops being an issue.

That doesn't sound like a good deal to me, but that's just, like, my opinion, man.

Quantify substantial.

Last time incorporated a Delaware C corp it cost me a couple of stamps and filing fees. I don't remember exactly but it definitely wasn't an obscene number. The annual upkeep, including franchise tax and registered agents, is around $600.

If you're not going to have a nexus in another state (i.e. No physical location or storefront) then that's peanuts for having a corporate vehicle in the the state for corporate vehicles.

If the cost difference of a couple hundred bucks is enough to break your bank, I'd suggest finding a 9-5 job rather than incorporating.

Can you elaborate?

Operational and structural details like this have always fascinated me.

Part of the premise of Gust Launch is that it's far simpler to start this way, as a Delaware C-Corp with expected structure, than it is to convert later. The conversions range from easy to extremely painful but they're almost all avoidable.

When it is time for fundraising, is it possible to just create a new C-Corp, then sell the assets of the LLC to the C-Corp? Are there major tax implications? Is it possible to sell the assets for a $1? Or would that be in violation of some tax rule?

As one example, the first Facebook business entity was a Florida LLC. Mark Zuckerberg then created a new Delaware based C-Corp that bought the IP from the LLC.

I believe the original trigger for converting to a C-Corp was the Peter Thiel investment.

If you buy something for less than it's worth, you have to book the difference as income. Not much difference between buying $1000 widget for $1 and buying it for $1000 and then getting paid $999.

No cash is needed to sell the assets or LLC to the C Corp.

Most likely, you would sell the assets of the LLC to the C Corp in exchange for some number of shares (valued at the pre-money valuation of the company) and then issue additional shares equal to the VC money such that the total value of the new C Corp is the post-money valuation.

Afterwards, the founders can distribute the shares and wind up the LLC.

The alternative is for the founders to sell the LLC to the C Corp for shares and then the C Corp can wind up the LLC.

I'm asking out of curiosity (e.g. I have no need to pay a lawyer or CPA to answer this): Would the founders have to potentially, or always, pay taxes on the conversion? Seems like the sale of the LLC or the assets could be recognizable gain.

It seems like it would qualify under the rules of an Other Nontaxable Exchange - Property Exchanged for Stock.[0] I think there are enough cases like this and the IRS rules are sufficiently clear that it will be possible to structure the VC investment in a way that eliminates any tax liability on the conversion.

[0] https://www.irs.gov/publications/p544/ch01.html#en_US_2016_p...

It's easy. Or the C-Corp owns the LLC, or IP assignment. Just move the assets over, not an actual sale.

> Incorporating as a C-Corporation in Delaware is the gold standard for high growth startups

Not every business is designed to be a "high growth startup". Consulting firms, bootstrapped startups, small micro-ventures, self-published presses, all of these benefit from the ease and simplicity of an LLC. Unless an investor is cutting you a check for $1mil+ I would lean toward an LLC.

Absolutely! For many kinds of businesses, LLCs make sense, but this post is specifically about startups.

LLCs make perfect sense for startups, too.

If they don't want to grant equity or take investment, sure. But doing one of those two things means the legal costs of starting with an LLC (which aren't standardized) substantially outweigh any tax savings, and almost no startups prior to that point have positive cash-flow anyway so taxed profits aren't much of an issue.

LLCs can grant equity just fine. Please don't spread FUD.

Sure, but there isn't an out-of-the-box mechanism to do that. You have to create a way to grant equity, which means you'll need to pay a lawyer—and hourly rates add up quick.

Still FUD. Plus, making equity deals without consulting a lawyer is a bad idea regardless of your corporate structure.

Exactly. Too many people trying to push all starts into a Delaware X corp for their own gain. Not great blanket advice for everyone, do your own research.

i agree, but it's not just a tax matter - there are also significant organizational and operational implications to be had.

Here's something I'm curious about. First off, I understand that few of you are lawyers, and any of you who are aren't being paid by me so none of this constitutes legal advice. :) I'd certainly talk to a lawyer before acting on it in any case, I just can't wrap my head around how Delaware is such an advantage.

I read that Delaware C corps/LLCs are the way to go because they're inexpensive. I'm in Texas. It looks like Texas would consider a Delaware entity as foreign, and require me to pay additional fees to do business in Texas. So that would appear to nullify any cost savings, since (IIRC) that fee was larger than registering the entity here when I last checked (I.e. I could just register a Texas LLC for $300 vs. registering somewhere else and paying a larger fee to transact business here.)

Is that just another in Texas' long and growing list of stupid things? Or, if your business is internet-based, are you not considered to be doing business in Texas in the sense that a more traditional corporation would? Not sure how that'd make sense, but...

It looks like, according to BOC 9.251, transacting interstate commerce doesn't automatically qualify as doing business, so if you might argue that a majority of your transactions are interstate by virtue of you being internet-based, I wonder if that makes a difference? So I'm wondering if this is a way that Texas is strict that other states aren't because, as I understand it, other states charge significantly more for LLC filing?

http://www.sos.state.tx.us/corp/foreign_outofstate.shtml

Thanks.

Startup/Venture Capital lawyer here (but not your lawyer). The foreign qualification requirement is fairly universal - California has it, too. There are occasions when incorporating in a different state can be beneficial, but generally if you're raising VC $$, VCs are going to want to invest in a Delaware C-corp.

Delaware is NOT the cheapest, but it is extremely flexible (both legally speaking and administratively speaking - there are very few states where you can pay a premium and find someone to come in on a holiday/weekend to file your restated charter to close a big deal), and it has a very well-established body of law. That means everyone knows what to expect. Think of it like a really great WYSIWYG editor, whereas other states' laws can be like coding a site in a brand new alpha release programming language.

> it has a very well-established body of law. That means everyone knows what to expect

Delawarean here! Having spent some time as a writer/reporter learning about the Delaware incorporation process, I've found that this is one of the biggest reasons why companies/investors continue to prefer Delaware.

Wyoming and Nevada are also known as business-friendly states in which to incorporate, but no other state has the wealth of case law that Delaware has.

True, but most people don't actually know the practical effects of having an established body of law. Mostly because it's difficult to compare Delaware with 49 other different sets of rules in a digestible format.

Here's one example of the difference between CA and DE: California, as a baseline, generally requires class votes on amendments to charters. Delaware, as a baseline, generally requires only a majority of all capital stock to vote in favor of an amendment to the charter. This means that in California, the holders of common stock (or the holders of a prior venture round stock) could potentially block a future round of financing, which most VCs would say is not a great result.

This gets murkier though because California law declares corporations to be 'quasi-California corporations' if they meet certain requirements such as having principle offices in the state, and then declares that some California corporate law rules apply. Case law isn't clear, so often class votes are held even if not required.

Ehh, since VantagePoint (DE Supreme Court affirming Chancery Court, 2005) and Lidow (CA appellate court in dicta, 2012) there hasn't been anything saying that Section 2115 should apply that I've come across. It's not perfectly settled, but it's not unreasonable to rely upon.

* note also that there's the oft-quoted "60% of Fortune 500 companies are Delaware C-corps," but most people forget about the contrapositive - that 40% of the Fortune 500 are NOT Delaware C-corps. It's the most common way to go, but not the only way to go.

SV VC-funded startup that began in TX as an LLC and transitioned to DE C Corp. Working fine for us (so far). We started as a TX LLC pre-funding, which worked fine and was easy for our purposes. Only 3 employees (2x 50/50 co-founders paying engineer out of pocket 50/50).

When we started getting term sheets, the big law firms for general counsel were willing to take us on under the expectation we pay them back until we closed our Seed Round. They helped to structure the DE C-Corp, transfer everything to the LLC, and directed me on all the paperwork that needed to be filed.

Winding down the LLC was easy, but you just need a controller/accountant to help you close the books properly and file the paperwork.

If you intend to go this route, my only major recommendation is to pick a name that is different/slightly different than what you ultimately want the company to be called. We ran into naming conflicts, which was an unnecessary PITA.

Second side-piece of advice: ask the general counsel to give you a fixed-cap cost for closing the round. We got stuck in some licensing negotiations as part of the close, which made things way more expensive than they should have been.

To user piker's point, most corporate attorneys are licensed to practice where they are and in Delaware, which has become sort of a default, because of the clarity of their regs and case-law. The deal seems to be: "Let's do business under some rules that both of us understand".

This Central Texas' startup attorney's blog is worth flipping through - and this article speaks to your specific concern:

  - http://siliconhillslawyer.com/2013/04/16/should-i-form-my-austin-startup-in-texas-or-delaware/

Net-net: You only need to worry about it if you are raising outside money. And it isn't any particular "Texas is stupid" kind of thing. (Many states are much worse...)

Generally the purpose of registering a foreign corporation in a state is to have access to the courts of that state if it needs to, e.g., sue a vendor. You're almost always going to be able to use your home state's court (although jurisdiction may be harder to obtain) or a federal court depending on the facts. Also, registering in a foreign state serves as somewhat of a soft "trademark" in that another entity of the same name cannot be formed in that state. In short, foreign registration may not actually be required under many circumstances.

If it is, you can always incorporate at home and re-domicile concurrent with the closing of a funding round on the investor's dime.

You are correct. Texas (as do most other states) penalizes foreign corporations as an incentive to file as a Texas corporation/LLC.

Yes on your second point as well -- you can delay this while developing the business. Although if you have revenue or Texas payroll (or outside investment), you definitely need to file as a foreign entity.

The reason behind the popularity of Delaware Corporations is the Chancery Court system, which is unique in the US: https://www.youtube.com/watch?v=0qIEvUYzwrc

the big reason has to do with taxes. Many states have state corp taxes, delaware does not. If you only register in texas it means that you must pay corp taxes for all profits made worldwide, if you register in delaware you only pay state corp taxes for the business done in those states. If you do 100% of your business in one state there is no reason to register out of state

A reminder: LLCs aren't one tax status.

You can have an LLC taxed as an S-Corp, an LLC taxed as a C-Corp, or an LLC taxed a pass through. Anyone who says an LLC is taxed in a particular way is way over simplifying to the point of confusion.

But, to over simplify on my own, Delaware is popular because it has a history of protecting shareholders over management. The movie Wall Street exists because in the 80s, companies tried to protect themselves from investors -- and Delaware stuck with shareholders firing management (not entirely, but significantly). In theory, investors may pay a bit less if you're in a state without that track record.

But, there are plenty of exchange-traded LLC securities, so it's not a bar or ban to fundraising.

The one reason not mentioned here that may tilt it in favor of a C-Corp is if you anticipate that your company will likely be bought at some point (i.e. strong market interest). When you incorporate as a C-Corp (or convert to one), the clock for a QSBS exemption starts ticking (see: https://blog.wealthfront.com/qualified-small-business-stock-...) The QSBS exemption can make your first $10M free of federal tax, and so is a very nice benefit. There is no QSBS exemption for an LLC - you will have to convert to a C-Corp, and the clock starts ticking on conversion.

Probably a stupid question, but if you're bootstrapping a startup into which you might (but also might not) take investment at some point, wouldn't it be better to do whatever has the lowest cost and administrative overhead, and then sign over all its rights/assets/etc. to a fresh Delaware C-Corp when/if you have investors ready?

So for example if you're in California you might do a California LLC until/unless you have a VC ready to back you. Or if you're in Germany you might do a UG (aka "mini-GmbH").

The point being to get yourself a legal structure and liability protection at the lowest possible cost in both money and distraction, and if it turns into something you want to sell some or all of to Silicon Valley you make a new company to own the old company's assets.

IA(obviously)NAL but it seems like you should keep things simple until you need them to be a certain way.

Yes. This is what most people do. The C Corp making no profits with no employees is a total waste.

Yep, this is essentially what we did and worked out pretty well (assuming the operations/accounting under LLC stays super simple).

LLCs pass losses and gains through to their "members" (the equivalent of a C Corp's shareholders). While this can be tax advantageous to closely held firms, it creates significant complexity for professional investors. As a result, professional investors typically insist companies they invest in be C Corporations.

As for Delaware, there's the most legal precedent on corporate law in the state making its rules the most predictable. Uncertainty increases risk and, therefore, decreases investors' interest.

There are lots of things you should be innovative on when starting a company, corporate structure is almost never one of them. If you're starting a business and think you may raise money from professional investors, incorporate as a C Corp in Delaware.

An LLC can choose its tax status - that can be as a sole proprietorship (for single member LLCs; basically it all goes on your personal return), as a partnership/S corp or as a C Corp.

I agree that you should either do a domestic LLC or a Delaware C Corp depending on whether you want a lifestyle business or a high growth venture capital-backed startup.

There's legitimate reasons for wanting a C-Corp over an LLC, but we were an LLC for 7 years and almost nothing the author mentions was an issue:

a) Legal liability? "Limited Liability" is what the LL in LLC stands for. b) Dividing ownership? If you keep things simple, like a 50-50 split, not a problem at all. c) IP ownership? What?

Yes, if you're raising money you probably need a C-Corp, but if you keep things relatively simple, the transition doesn't need to be expensive or time-consuming.

The page never says a. or c. There is even a venn diagram down near the bottom showing they both have these qualities. It's arguing for incorporation, and then specifically as a c-crop.

Ah ok. I was reading the subhead "how is a C-Corporation different from an LLC? Here’s the rundown." as implying that the content was right below that about the differences.

He forgets arguably the most important consideration - taxes.

C-corps have double taxation and LLCs do not. For every dollar you pay yourself from your cooperation you'll have to pay on the order of 15% more.

If you plan to never make money or just make money by raising money then a C-corps is for you. Other good argument is if you plan on going public. Otherwise strongly consider the tax implications before starting a C-Corp.

If there's a chance you will want to be raising funds or giving out equity than it might be cheaper to form as a C-Corp, temporarily elect S-Corp status, and elect to remove that S-Corp status when need be.

The post addresses this, but double-taxation doesn't usually apply very much to early-stage high-growth startups—most high-growth startups spend their positive cashflows for growth and thus don’t have any positive net income to pay taxes on.

If you're raising investment and burning through money, you won't be paying taxes anyway, so it doesn't really matter.

Fun thing about Delaware: they have an equity court run by the state that functions as a secret arbitration panel. But instead of ruling in line with the law, they rule in line with what's deemed "fair," hence the name "equity court."

Unfortunately we don't know how they rule so we can't run statistics on it. But if anyone would like to leak a data set, feel free to leave me a message in this thread

You're talking about Chancery Court: http://courts.delaware.gov/Chancery/

I'm not sure what you mean by secret. Here are some of its recent opinions: http://courts.delaware.gov/opinions/index.aspx?ag=court%20of...

I got two things confused. They had secret arbitration as part of the Chancery court and but apparently it was shut down by the federal courts

Thanks for pointing that out

http://articles.chicagotribune.com/2014-03-24/news/sns-rt-us...

Arbitration proceedings are normally private and confidential, by consent of both parties, so the fact that it was "secret arbitration" isn't surprising. It looks like the news media were describing this as "secret courts", which seems a little sensationalist.

It seems to have been a way for standing court judges to decide arbitration cases. Without knowing anything about the circumstances, that seems better than having other people who are not judges decide arbitration cases, no? What was the problem with it?

This page seems to have more detail: http://apps.americanbar.org/litigation/committees/commercial... - since it was a government-sponsored program, the public has the right of access because courts have a tradition of accessibility.

Delaware Court of Chancery? For completeness, you should explain how other states deal with the issues that the CoC rules on.

very interesting stuff how I get it.

I haven’t got a ton of experience in this arena, but what I have done in the past is: 1) incorporate the larger venture as an LLC (“My Company, LLC”); 2) incorporate the specific project as a C-Corp (“My Company’s App, Inc.”) – my partners and I own the LLC, which controls the C-Corp, which holds the assets of the project.

Specifically, this makes it easier if we want to sell ”My Company’s App“ to a Facebook- or Google-class buyer entity. The LLC can also incorporate a bank, if ”My Company’s App“ needs to start conducting transactions that necessitate the use of (say) a Federal Reserve client (á la Venmo or Stripe).

I don't see how this would make it easier? What advantage do you have?

Separation of concerns, fungibility, limited exposure, a lower bar on future legal entanglements … I could go on

Has this separation actually paid off for you?

I formed a Delaware C-Corp when I had a different vision for my company.

But now I have no plans to raise capital, get co-founders, issue stock, etc. I just want to run the company as as a solo-founder cash cow.

I never issued a single share (even to myself), never assigned any IP, and the company has no tangible assets. I just ran expenses and payroll through the company. I suspect that would make closing the C-Corp easy. I'll then create a new CA LLC with completely separate books.

I realize HN isn't a free legal advice forum, but any comments regarding the challenges of closing a DE C-Corp would be appreciated.

Startup/Venture Capital lawyer here (but not your lawyer). Winding up a corporation can take a little time, but it's generally not terribly complex. It's mostly filing a few forms with the state. However, there are more considerations that you'll want to make as you decide what to do - one question being, "who is liable for the acts of your company before the CA LLC existed?" Entities, when properly used, can shield you from personal liability. But if the entity is no longer in existence, then you may end up being personally liable for any acts (without the proper planning).

The information in this post is not entirely accurate.

You can certainly issue incentive equity, divide up ownership, AND take money from outside investors with an LLC. We did it frequently at the private equity fund I worked for a few years back.

Little known fact -- if you structure your employee's incentive equity as LLC profit interests, the ultimate payout is treated as capital gains as opposed to ordinary income (which is the case for vanilla options) for tax purposes. It does take a little more structuring but definitely worth the hefty payoff in my opinion.

Is it true that you may enter the funding cycle as an LLC but that as a practicality you won't exit funding as anything but a C, that angels and VCs will insist on this restructuring? I think the answer is yes but I don't know.

Can someone price the cost of converting a Delaware LLC to the C structure that VCs will expect? I think (again, I don't know) that we're talking about a couple of grand of post-money lawyer time.

Early stage startup founders have a lot on their plates. Getting this nuance right to save a few bucks will cost some upfront neurons and some time for something which is ultimately procedural. The OP suggests that we mentally work through this ahead of time and I see the point. But it's like priced equity vs SAFE. It requires a lot of upfront neuron work.

The LLC vs C tax issue seems to be a bit of a canard. You most likely won't have any profits to tax this early and you won't exit funding as an LLC.

Anyways, as the Zuckerberg Florida LLC example shows, you can get these things slightly wrong and still move forward. Getting something infinitely right will guarantee that you will never move forward.

Startup/Venture Capital lawyer here (but not your lawyer). Agreed with chimeracoder below. As for cost, a few grand is a good minimum estimate, but it really depends on the complexity. If you've been around as an LLC for a while, you may have different types of equity that has been issued (e.g. profits interests), which will complicate the conversion process a bit. Your lawyer will also have to review the LLC's operating agreement to make sure there aren't any funky protective provisions or oddities that will complicate the conversion. Unlike most Delaware C-corp charters in the startup world, LLC operating agreements are extraordinarily flexible and variable documents, so it's a custom review almost every time we have to go through one of these conversions.

> Is it true that you may enter the funding cycle as an LLC but that as a practicality you won't exit funding as anything but a C, that angels and VCs will insist on this restructuring? I think the answer is yes but I don't know.

There's never any hard-and-fast rule in the startup world, but pretty much any VC will want you to be a C-corp instead of an LLC.

(You're unlikely to get refused funding just because your company is an LLC, but they'll likely want you to restructure before the deal finalizes).

There are three points of his, with which I have personal experience, where I believe the article is incorrect.

1. Division of ownership in an LLC can be made very similar to a C-Corp. In all rights and restrictions. In an LLC it is typically called a Unit instead of a Share. You can sell a PPM (Private Placement Memorandum) for Units, at some par value, to raise money. You can dilute Units. Units can have voting rights or not. His statement on division is clearly incorrect from my own company where we had many initial investors. Some were institutional, some were individual, some were via investment vehicles.

2. He states LLCs don't have Options. This is also not entirely true. The similar vehicle in an LLC is called a Warrant. Warrants can have the same rights and restrictions as Options. Warrants are used to incentivize employees with ownership rather than cash. Again, in our company we used Warrants to attract talent and compensate early employees to great effect.

3. Protection is another point he brings up. Yes the Corp (C and S) is battle tested in the courts. Yes LLCs have not been tested to quite that extent. However, to flatly state that a C Corp will protect you is a little overselling what the reality is. The Corporate Veil is not impermeable. As a matter of fact, it is most often pierced (outside of blatant misconduct) by attacking under or low initially capitalized companies and closely held businesses. Companies like startups who start small and become successful quickly.

I see this particular article as not having researched LLCs, their use case, and the benefits they possess in some cases over Corporations. I understand no SV VCs will talk to you unless you have a C-Corp. I get it many Lawyers in the startup ecosystem want you to create a C-Corp. But this is truly a small percentage of businesses and even a small percentage of startup businesses.

Why blanket write off any particular solution (or all others for that matter) without first checking to see if it can meet your specific needs?

    Most angel investors and VCs will also insist that your company be a Delaware C-Corporation for legal reasons

I keep hearing this, but what are these reasons?

If you invest in an LLC then you will be purchasing membership units. If you have membership units in an LLC, then you have to file a tax form every year (K1) that reports your portion of the earnings or losses from the LLC. The investor will have to pay the taxes on his portion of any profit generated by the LLC, even if the LLC didn't distribute any the profit.

Investors typically have dozens of investments. Filing K1s for all of your investments is a huge amount of work.

The LLC issues the K-1 to the investors, you just attach it like the other 1099ish forms you receive from other sources of income (e.g. 1099-DIV).

As an angel investor, I don't want to deal with that kind of hassle. If the company is losing money, it may want to carry forward the tax losses to offset future profits. If the company is making money, are you also going to distribute cash to your investors to offset the tax liability you just threw onto them? Will you get my K-1 to me well in advance of the April 15 filing deadline so I can plan my taxes, or will you piss me off by getting me a K-1 on Apr 14 and surprising me with a last minute tax liability? If any of your investors are non-US persons, now they have to file US income tax returns. These are the practical reasons why investors hate pass through entities.

Which is entirely fair. I don't think I've ever received a K1 before April 15th, including from the venture funds I invest in.

The reason is that many of their LPs (e.g. pension funds) are non profits, and they can't have taxable income flow up to them or their Unrelated Business Taxable Income will threaten their nonprofit status. VCs are flow-thru entities so any income hitting them from _their_ investments would hit their LPs. Therefore they can only invest in blocking entities.

I agree with this, but out of curiosity, presumably the funds have their own blockers/SPVs below that they could just route their investments through and allow other investors in the startup to receive the flow-through treatment (like we would in hedge/PE). My assumption was that the standardized governance structure of a Corp was also appealing to VCs who prefer it to the possibility of being screwed by an adverse amendment to the LLCA, etc.

yes this is commonly done in PE but for whatever reason it's not done in VC. usually they say it's b/c of compensation via options but i don't actually believe there is a principled reason behind it.

When I did it, I was told in short by legal that "at this point it is a red flag if you don't do it."

The original reasons may have been tax based or precedent based, but at this point it is also because that's the default that VC is used to

Delaware law reliably protects shareholders.

> Most angel investors and VCs will also insist

If they do "insist" on this regardless of circumstances, it would not be ideal to partner with them since they clearly don't know what they are doing. And if you are partnering with someone, don't you want them to know what they are doing?

The list of VCs that insist on a C-Corp is essentially the list of VCs. So sure, you don't need to convert, but you won't ever be able to raise VC money without converting.

Anyone starting a business should consult an attorney and an accounting firm, discuss your business, discuss your short and long term goals (are you planning to run the business forever, with partners, or sell it as soon as possible?)

They will help you determine the best solution for incorporation.

There is no cookie-cutter answer to incorporation and anyone that pushes one is probably selling you something and most likely not an attorney or accountant.

For those of you who aren't raising money or have cash flush from VCs: how do any of you, if you're in California, handle the LLC 800 dollar min tax? Do federal deductions against the business typically negate it?

I understand the reasons for not having a direct LLC in Cali (Delaware, Nevada and Wyoming are the gold standard I realize)

Just wanted to know in practice if you just bite the bullet on the stupid minimum tax or not

I hate to be that guy, but no one should take legal or accounting advice from a blog post. There are a lot of good reasons for your company to be an LLC or C-corp and there are a lot of good reasons to incorporate outside of Delaware.

Nevada for example also has no corporate income tax. Montana, South Carolina, and New Mexico don't specifically regulate money transmitters.

Delaware is great for share holder rights, but if you don't have a lot of growth or external investors yet, incorporating in Delaware may be overkill as you can always do so later.

Mostly, startups should be focused on product, not things like incorporating until you need to. And by then, spend the lousy 2k on an attorney to advise you and do it properly.

You're confusing domicile with state of incorporation. E.g. A Delaware corp resident in Nevada pays no state income either. As others have said, if you plan to raise outside capital and have an exit, then you should be a Delaware C Corp. If you are planning a lifestyle business, then an LLC in your state of residence is fine.

im not confusing anything. Deleware C corp is beneficial for a lot of reasons. so is an LLC. Many startups might have both.

Corporate structures are significantly more complex than:

> if you plan to raise outside capital and have an exit, then you should be a Delaware C Corp.

> incorporating in Delaware may be overkill as you can always do so later

This is not that simple. As a rule, I apply a discount (for legal cost and risk on all sides) to any American company raising funds out of a non-Delaware entity.

i understand its not that simple, thats why im advocating getting legal advice from places other than startup blog posts.

Spoiler alert: Gust is not your lawyer, don't take legal advice from them.

Why is this the default answer to any discussion on topics such as these?

I look at it as Vaudeville acts vs Hollywood films. Or local hack community college professor vs Youtube Stanford Machine Learning Course.

The legal and tax situation is written into the law. The VC outlook on this topic is common knowledge.

So why do we have to pay expensive consultants (attorneys, accountants) for what are in reality just FAQ's.

Incorporating an LLC is one of the easiest government interactions I have ever had. It is literally a one page form, the hardest part is picking the name of the company (definitely check the US trademark office database and get the .com)

It was the same for the Delaware C Corp I created. A one page document that needed to be faxed.

All the rest of the paperwork was very elegantly handled by Clerky.

I think there is a big risk in going for advice from an attorney and getting bad advice. I feel much more comfortable in broad research on a topic and crowd-vouched and vetted knowledge rather than trusting one sole practitioner.

While yes, this isn't legal advice, I'd just like to add that the product and software were both built with heavy involvement from experienced startup lawyers.

Nothing about S-Corp? We did the C-Corp twice and we've never got to the level we wanted so we switched both times to S-Corp. Currently we're as S-Corp and it saves us a lot of money.

Here is my question:

How can issuing options be worth the cost of taxation?

I mean, eventually, you get taxed 35% extra! How can the ability to issue options possibly offset that massive value transfer out of the company?

Belgium has a 0% tax on selling shares. Left wing parties want to change that. I hope they're never in enough power to do so.

They're overdoing it with:

"you want ownership of these intellectual property assets to be the property of the startup, not the individual founders" ... "means that nobody can hold the company’s future hostage purely on the basis of their past contributions"

This ain't so easy nowadays.

If I understand correctly, a California company that forms a Delaware C-Corp will not only have to pay California state taxes but also 7.8% taxes to Delaware.

Is my statement accurate ? 7.8% of net profits is such a huge expense I can't understand how any company justifies it.

No. That 8.7% tax is for taxable income derived from Delaware i.e. if you physically operate out of Delaware.

One of these days I've gotta write, "why your startup should be a co-operative".

Your startup should be a C-corp only if you are raising money and want to take on the additional organizational complexity.

Otherwise the author is wrong to try and say that all startups should take this path and not LLC.

Especially if you're bootstrapping, LLC is the way to go.

If you quit your job during the year (let's say June), then you can deduct your LLC losses the next year, and receive a nice tax refund. You can't do it with an C-Corp.

Note: You may also lose the ability to get local (state/city) tax breaks and government money if you are an out-of-state corp.

Sure, he's correct -- if and only if make a lot of assumptions.

But he is talking about startups, and there, from all I can see and without his many assumptions, a Delaware C-Corp is a lot more time, lawyer money, other overhead, and botheration than just an LLC.

Sure if I have co-founders, which YC seems to want but I don't, or Sequoia wants to write me an equity check for $20 million, which, by the time they would, I wouldn't need, want, or accept it, I'd want a Delaware C-Corp.

But, IIRC, with a C-Corp, I have to have a BoD that I have to keep happy, or they can and very well may fire me -- take my company. So, a Delaware C-Corp has me take a lot of the power I have as CEO and 100% owner of my startup and hand a lot of that power, control, and financial value to a BoD for no good, and many really bad, reasons. "Financial value"? Sure, the BoD could fire my ass, put in one of their buddies as CEO, and the BoD and their buddy could issue nice stock options to the members of the board. Due to vesting, etc., I could leave with nothing, not even $0.00. They could flatly just steal my company from me including all the value, cash, intellectual property, promise, everything -- 100%.

There's nothing seriously wrong with, and a lot of important advantages to, being CEO and 100% owner of a successful LLC startup. Or, all across the US there are pizza shops, flower shops, auto body shops, dentists, etc. that don't have a BoD. My startup has a lot more financial promise than an auto body shop, but I don't want a BoD either.

E.g., with a BoD, have to have board meetings. Then the members of the board have to travel to the meeting. So, guess where the money comes from for their travel (first class air, limo service?), lodging (four star hotel?), fancy dinners? No thanks.

I learned early on that I'm not always good at pleasing people, even if I do really good work. E.g., my Ph.D. is in applied math, and I did the research independently with no faculty direction or input, picked the problem before I went to grad school, and did the core research in six weeks alone in the library in my first summer. I gave a graduate seminar on my work, designed and wrote the illustrative software, wrote and typed the dissertation, stood for my oral exam (majority of the faculty from outside my department, Chair, Member, US National Academy of Engineering, from outside my department, majority people I'd never met), passed, first time, without revision, from a world famous, world class research university, and got my Ph.D.

BUT: In the eighth grade, the arithmetic teacher gave me a D (as is common for boys of that age, my handwriting was awful and so was my clerical accuracy) and fervently advised and urged me never again to take anymore math. Right, honey: I didn't take freshman calculus, taught it to myself, started on sophomore calculus in a course using the same text Harvard did, found the course easy, and made an A. In my high school, all the female teachers (gossips?) were all conviced I was a poor student and a poor math student, but the only male math teacher I had sent me to a state math tournament, my aptitude and achievement tests showed that I was one of the best math students in the school, an especially good high school, I got sent to an NSF summer math program, and on the school's SAT math scores, of 1-2-3, I was #2. #1 went to Purdue. #3 went to MIT. In college I wrote on group representations and got Honors in math. My math GRE score was 800. Then I was sent to another NSF program, in axiomatic set theory and modern analysis. But my high school female math teachers thought I was a poor math student. I was a very good math student, but there was no way I could please those females.

Being good is not enough. Instead, people can get totally pissed at you for no good reason, even if you walk on water in warm weather.

A BoD might just hate my guts. E.g., if I presented some original math derivations, with advanced prerequisites, for a step forward for part of the business, say, as part of getting the budget approved, the BoD might soil their clothes, the board room furniture, and the carpet on the way to the rest rooms and come to deeply, profoundly, bitterly hate and despise me, all for no good reason.

If have something rare and good, don't dilute it with a lot of mediocre nonsense. If are lucky enough to have Michelangelo painting the ceiling, don't send in a lot of house painters to give him advice. Or, when Stravinsky wrote Right of Spring, some Tin Pan Alley guy wanted to recommend a good arranger for Stravinsky's music. For such nonsense, just say not only "no" but, if they insist, "hell no".

Reporting to a BoD has a big downside, a huge risk for no good reason, and nearly no significant upside. E.g., there is a good chance that not one BoD member of an information technology startup anywhere in the world has even the math prerequisites to understand the crucial, core math I derived for my startup; not understanding the math, they will not be able to do their jobs and will hate me. So, no way do I want to put my career and startup in the hands of a BoD that hates me.

Once I create a C-Corp can I change it later to a LLC, for selling assets later and paying less taxes, per example?

Don't form a C Corp until you have investors ready to pay for it. (100k+ check.)

What if I'm Canadian? Is it better to incorporate in Ontario or Delaware?

Do you mind paying US tax?

I don't mind, in fact I was under the impression US tax was lower than Canadian tax

Why no mention of S-Corp?

S-Corp is a pass-thru, so not acceptable to take outside money. The investor wants a C-corp. But home State or Deleware is debatable. I chose home State vs Delaware for tax reasons

LLC's are also passthrough by default, though you can elect another tax treatment easily enough. The problem with s-corps is that a valid s-election requires that all stockholders are humans. The presence of a business entity stockholder would void your s-corp status. Keep in mind that an s-corp is not a different kind of entity, it is just a corporation that has a valid election for passthrough taxation under subchapter s and equivalent state income tax provisions.

Yes. And sometimes the investment round you take is from a group of investors that have formed their own LLC - this one LLC takes smaller monies from investors and then, as the LLC becomes an investor in your Corp. So, their LLC need you to be a C-Corp. Or add each of the dozen+ LLC members to your own cap table, what a mess.

IANAL, but I'd imagine being limited to one class of stock would really shoot you in the foot for fundraising (no preferred stock for investors, etc.)

Reading this made me want to incorporate as an llc... lol

AND THE COUNTERPOINTS:

1. An LLC is easy and you can form a C-Corp whenever it is needed. If your investors are equity/debt firms, they can form the C-Corp for you at that time.

> but most startups usually stick with Delaware and file a foreign qualification form to operate in their own home state.

2. There are at least 55 states and territories in the United States which ALL HAVE THEIR OWN SEPARATE incorporation laws. Their legislature hasn't been asleep for the last 30 years, there is real competition in fees, regulations, anonymity, taxes and incorporation structures in many jurisdictions outside of Delaware.

If their courts encountered an unforeseen problem, they can all lean on Delaware's entire body of case law. So the benefits of Delaware's court of chancery are overstated, and the circumstances where you want that or its arbitration are slim.

3. Delaware's oh-so-progressive corporate laws also include parallel securities transparency laws that can introduce compliance burdens above and beyond what the Federal Government stipulates.

Conclusion: You don't need a C-Corp and you don't need to incorporate in Delaware. Being spoonfed the perks of Delaware is easy and barely anybody is publicly talking about what other states offer, and you will have to do your own research.

KPMG and Deloitte and PWC produce annual documents on incorporation perks in jurisdictions all around the globe. Including individual United States.

A Logical Fallacy: We did something we think might be right for us (but we don't really know yet), therefore everybody in the entire world should do exactly the same thing regardless of their circumstances, and divorced from whether or not this actually works for us or not.

Agreed. The argument Gust presents here for making a C-corp is pretty darn thin, if not verging on inaccurate.

I agree that a C-corp is the right way to go if you're planning on raising venture rounds, but the three reasons presented (can grant stock, can grant options, and required by investors) are misleading at best. LLCs can grant membership units/shares and profits interests, which can act functionally very similar to stock and options.

"By convincing you to do this thing I did, I will help convince myself that I did the right thing when I did it."

I'm jaded to the point that I'm skeptical of any posts starting with the words "Why" or "How". It's creeping closer to the phrase "these n easy steps".

I wonder when we will be able to integrate blockchain based entities like Aragon into the startup economy:

https://aragon.one/

We haven't seen things like the first acquisition, the first bankruptcy, mergers, etc . . . and don't even know if those things are exactly possible as we conceive of them today.

That sounds like a category error.

Your individual and/or corporate actions happen in a legal jurisdiction - technology does not change that.

It'll be interesting to see "solutions" like that run into the first clashes with a legal system that is not inclined to accept "the software won't let us do that" as a valid excuse for not complying.

I tend to think about it the other way. I think it'll be interesting to see a legal system's first clashes with "code doesn't do that".

Most legal systems have hundreds of years of experience with clashes with people saying "we can't do that". It's one of the oldest excuses around.

The solution tends to be to either assign whatever applicable fines or other punishments applies, or to put someone in jail for contempt until the come up with a solution.

If you have structured your company in a way that makes it impossible for you to comply with a courts decision, then that is your problem - it does not absolve you of the responsibility to comply with the courts decision.

There's simply nothing new there. Blaming technology will rank up there with "the dog ate my capitalization table" on the list of arguments the court will not care about.

I think we're moving into a post-Westphalian world.

Interesting, but a pretty strong claim to leave implicit in your statement, to say the least.

As far as I can see there is today both a massive technological and social gap to what is needed to force a crisis that might result in such a world, but it's interesting to think about.

I wasn't trying to argue or prove that we're entering a post-Westphalian world. Just stating my belief that that is the case . . . I do have a day job . . .

Anyway, I bet Trump could do it!

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