Ask HN: YC/Delaware C-Corp Capitalization? | Hacker News Reader

Ask HN: YC/Delaware C-Corp Capitalization?

6 pointswill_brown5 comments

Is there a resource available that points out the typical capitalization of YC start-ups, assuming there is a common formula? Separately, I welcome input from non-YC founders who have a Delaware C-Corp.

For those not aware, Delaware C-Corps must pay an "annual franchise tax." See: http://corp.delaware.gov/frtax.shtml

Perhaps this is not an issue for Start-ups with funding, but even then I would assume most start-ups would opt for "No Par Value" Stocks and <5,000 "issued shares" to minimize the franchise tax fee (which I believe is $75). Then again I could also see recapitalizing upon a funding event to adequately reflect the "true capitalization." As a side I have personally seen some corporate clients place themselves in unenviable positions by forming DE C-Corp's, without a lawyer, with capitalization of 1,000,000+ shares only to find out they hit the franchise tax ceiling (I believe $180,000) which came as quite a shock and I imagine would be a significant amount to even well funded start-ups.

Because of the potential liabilities that a misstep may create, creating a Delaware C Corp should be done with the advice of one's attorney and accountant. If their professional advice seems cost prohibitive, there's probably not a sound reason to create a Delaware C Corp.

Good Luck.

> creating a Delaware C Corp should be done with the advice of one's attorney and accountant.

Sage advice, I am an attorney myself, and in my prior corporate practice I saw numerous missteps regularly as a result of the relative ease the various Secretaries of State/Division of Corporations make it incorporate.

My question is specific about the capitalization structure (# of Share and par value) of YC companies...More basic: if there is a typical capitalization structure or if there is not that YC companies follow. I would assume it is possible there is a typical structure as the majority of the YC companies are in a similar position at the beginning (i.e. seed funding in the same amount, with the anticipation of quickly raising additional funds at the end). Examples of the exceptions I can think of would be the non-profits that do not have stock and I believe some may come to the table having already raised some funding.

Your information is not correct. You can have 100M shares and still pay the minimum tax (well, not $175, but $300). From http://corp.delaware.gov/frtaxcalc.shtml

Use the method that results in the lesser tax

The tax rate under this method is $350.00 per million or portion of a million

So as long as your assets are below $1M, your tax due is $350. If you really want to minimize your rate to $175 instead, then yes, issue only 5000 shares.

I did a single member Delaware LLC. tax filings are easier as its just a pass through on your schedule C. I think you can convert to a C corp later on to.

Yes, LLC's do not have stock; therefore, the DE franchise tax calculation for LLCs is not the same a C-Corp...it is just a flat fee.

Edit: You are also correct that an LLC can be converted into a C-Corp.

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