Hacker News Reader

Comment by sourc3 | Hacker News Reader

Does this mean that all these start-ups can show some sort of transactions in Delaware? We just had a talk with a business lawyer (we are from NY) and we were strongly advised to incorporate in NY to avoid issues in the long run using an LLC structure. I am pretty skeptical that this is the way to go but would like to hear some opinions here from already established startups.

View on HN

What were the issues your lawyer brought up? We were DE LLC- filing- as- S headquartered in NYC for something like 6 years.

You had to register in NY as an out-of-state LLC, though, right? And maybe also in IL?

I'm a little vague on the requirements for additional registration in a principal's home state or in state(s) with declared office(s) when the LLC was formed elsewhere.

A startup may not want to deal with the additional fees for registering in another state, maintaining registered agents in each...

Since both founders are living in NY we would have to file in both states and it would be much more expensive. Also, we would have to periodically show some transactions being made in DE to justify our existence there.

Did you have to do something similar while you were filing as NY Headquartered S corp established as an LLC in DE?

o.O

We've never had to show transactions in Delaware.

you generally avoid incorporating in states that you don't transact in initially to avoid additional tax compliance and costs that are significant. But, its a case by case situation that depends on business reasons and personal preferences usually.

Legal entities are like "clothes" that need to be changed as a company grows and changes. Nothing ever stays the same forever, so theres a lot to think over.

Thanks! Clearly I need to talk to a couple more lawyers :)

As mentioned in other comments, piercing the corporate veil is on thing, but another thing is that if you're doing business in NY and you're not incorporated here, you're going to have to register as a 'foreign agent', which can be costly, esp. for a LLC.

But if you don't reg. as a 'foreign agent' or are incorporated in the state you can't legally do business in NY state.

Hopefully your business lawyer knows their stuff and complained about the NY state LLC publishing law (posting ads in newspapers announcing your LLC). If they didn't, I would be skeptical of them.

NOTE: IANAL and take all of this with a grain of salt, I may be completely wrong.

Yes, he mentioned the costs as well. Clearly there are advantages to go the Delaware route but for cost reasons, we may end up going with an LLC in NY.

Google "piercing the corporate veil" if you'd like an example of what can go wrong.

Generally speaking, you want to incorporate a C-corp or LLC in the state where you do business. Alternatively, you can use a biz-friendly state like DE and register as a "foreign" corporation in the state of your primary location.

None of this matters unless/until you get sued, and then it matters a whole lot.

DE is chosen because you can state in all of your contracts that disputes are resolved in DE which has a special business court that handles corporate actions. There are also some outside tax and compliance benefits.

I'm not sure the "corporate veil" stuff has much to do with company formation --- except to the extent that you incorporate and operate in crazy jurisdictions like Minnesota, where salary obligations attach to company directors. Most of the "piercing the veil" stuff I've read comes from directors intermingling their own finances with those of the company.

(This has come up on HN before.)

crazy jurisdictions like Minnesota, where salary obligations attach to company directors

Can you re-phrase this in a way that's googleable? Thank you.

Here is one example: someone is listed as an incorporator (or "promoter") that can't legally be one. Or, ineligible parties are on board of directors. You name it, it's been done.

But more generally, forming a corporation means that you have ongoing legal responsibilities to fulfill. Doing that without at least an attorney on call is probably a good way to create the impression that you aren't "keeping up appearances". Minutes, board-meetings, shareholder ledger. Etc.

Anyhow, none of this matters if you use an LLC. Lots less red tape and lots less chance of accidentally tripping up some legal requirement for an arms-length transaction.

I dispute the notion that not having an attorney on retainer and maintaining board meetings and shareholder ledgers is going to result in contacts between your corporation and its vendors binding instead to company directors.

It's easy to wind up personally on the hook for corp expenses: accidentally agree to a contract that puts you on the hook personally. But again, that's not a company formation issue.

I generally agree with you that LLCs are the right first step.

Being a DE corp really only affects disputes among members of the corporation, not between the corporation and outsiders.

http://www.calstartuplawfirm.com/business-lawyer-blog/califo...

Reply on news.ycombinator.com