markklarich

I particularly like the pie calculation as it addresses more variables more effectively. I would add that the agreement used (probably an LLC or Limited Partnership rather than a corporation) should provide sufficient flexibility that when things change (and they certainly will) the agreement is ready to help adjust the relationships. Thus, I would, among other things, use the pie chart each year to help adjust the relationships to meet changes that have happened over the year. The prime example is the founder who left after six months to do something else. Or the manager who is brought in after the idea is making money, but not much money.

Amen.

I am not at all sure that those big decisions should be made by consensus, however.I once worked on a deal where the founder was very experienced in group dynamics and he insisted on solving all major issues by majority with all minor issues by consensus. Since then, I offer that solution to groups and generally they take it. In my experience consensus is so subject to the "holdout" that only the most sophisticated groups can avoid it. You don't want the major issues to be hijacked by one unhappy party. Its way too time consuming.

Many of the tricks used to lower taxes on the wealthy are available to small and medium sized business owners. We can borrow against unrealized gains. We can distribute income that is not subject to social security tax, If one can get a real estate loan these days, we can shelter real estate income with depreciation. We can even pay ourselves rent, thereby changing it from SS taxable to not. Indeed, in the internet industry we can certainly keep gains unrealized much as Hedge fund managers do. All it takes is some education and a creative, thoughtful accountant or tax lawyer. The article makes it seem that one has to be rich to take advantage. In my experience that just isn't true. The laws are applied equally. Its the employee that takes it in the ear. Not the employer.

Great point. In contrast look at what we generate in this country - http://www.zerohedge.com/article/matt-taibbi-asks-why-fed-ga...

Exactly. Thanks.

For smaller amounts, how about setting up an account in the US and getting a debit card for the payee? Pay into the local account. They use the debit card.

Remember, if you set up an account outside of the US, and its value equals or exceeds $10,000 for even a moment during any year, you have to report it. Not saying you shouldn't do it. But a word to the wise . . .

As is evidenced by this and the GE story some weeks ago, it is clear that good (as in thoughtful, experienced, and very legal) guidance in taxes is almost always worth the cost--IF there are big bucks on the table.

In my experience, many of the techniques used with the rich can be used (after a little tinkering) with struggling startups. Its just that the wealthier clients are willing to pay more. There are only so many hours in the day. Thus, the professional, by default, doesn't choose to end up earning 1/2X when they could just as easily earn 2X.

There must be a way to leverage technology so that these expensive folks get paid the market rate and micro companies can afford it.

Not cookie cutter forms, but real, specific, thoughtful solutions that fit.

Maybe its in the interface.

As an accountant and tax lawyer who works 100% remotely with clients, I'd like to chime in. I definitely think that there is a place for a service that can help people find accountants and lawyers. The average person has no way of knowing how to choose -- what makes a good preparer/counselor? How much should they cost? How available should they be? This is the obvious part of what could make Sanetax very helpful.

The less obvious part to folks who aren't in the "industry" is that accountants and lawyers really struggle with technology issues. Technology is not their primary skill and yet tax preparation has become very tech intensive. Add to this all the issues around privacy. There aren't any good solutions that have been widely adopted in these communities for handling confidential material online--i.e. your social security number.

Speaking for myself, I use Magic Vortex where I can for file transfer, but have only recently transitioned to using encrypted pdf's in emails and have had considerable problems with client confusion with the files. I cannot imagine the extra technical support that I might have to provide while trying to use encrypted email, even though it's totally warranted. Perhaps Sanetax can help with these issues.

I would also like to strongly agree fully with fourply's post. The entire industry is not as simple as it might appear from the outside. Like most things we live with these days, regulations are multiplying even as we speak, and they vary widely from state to state. Accountants and lawyers have to meet restrictive federal and state regulations, including around how we get clients in the first place. Hopefully Sanetax will find ways to work with all these rules.

As a service provider, if I could "buy" a satisfied customer (That means repeat business for the next, say, ten years.) and the "cost" of that customer is 50% off my first job, I'd take it in a heartbeat! If my average bill is $100 and I am going to get ten of those over time, I am earning a little less than $1,000. (considering net present value) However, I just got a new customer. That is worth something in opportunity cost. If this person becomes a satisfied customer and tells five of their friends,there is no better marketing! And all this for $50! This is why lawyers and accountants often give the first hour for free. On the other hand, if I offered my services on Groupon and end up with 500 responses, I could not begin to handle the response. How do I vet 500 possible new clients quickly? Exactly the reason I don't advertise on the web. (nor in the LA Times) I suspect that most brick and mortar businesses would have the same response. They just don't know how it will work nor if they can deal with it if it does work. This is why internet startups are and will continue to be a fast growing business. Most small businesses haven't even begun to use the internet as it can be used to decrease costs and increase efficiency.

The ease with which one can "pierce the veil" varies dramatically from state to state. Another reason to be careful about your choice of location for corporate headquarters, employment, "significant contacts," and so forth.

In the meantime, how about IRS code that allows an inventor who owns his invention personally to take capital gains treatment on the sale of that invention contrasted with ownership by an LLC (even single person LLC) or other entity which subjects the owner at sale to normal income taxes at (usually) a much greater rate? I can imagine many convincing reasons for the entity to own the code. But why do that unless you have to? I would tend to want to own the code personally. More flexibility.

I wholeheartedly agree. Really good point! Wait to swing at that ball until it has almost hit the floor--wait, hold, wait, hold, and wait some more. And other than the fact that the article addresses incorporating in Delaware, why are we limiting this discussion to corporations as apposed to the myriad of other entity solutions? And shouldn't we be discussing how to formalize our relationships so that the formalities HELP us, not hinder us? So I would add "what kind of formalities do we need" and then "what kind of entity?" to your "other" questions as well. I don't know if you need a lawyer -- depends on the lawyer -- a lawyer who is willing and able to see into the dynamics of the group and has the wisdom to keep the agreements as loose as possible for as long as possible.

From a tax perspective, locating the US office in a tax free jurisdiction is most wise. These states would include Washington, Nevada, Wyoming, Texas, Florida, and (sort of) New Hampshire. Also, setting up a relationship between the foreign entity and the US entity to minimize US taxes (as Microsoft has done --see above) certainly helps. Finally some attention has to be paid to the tax effects on the US citizens (or green card holders) and the non citizens (or green card holders). Most foreign tax questions involve an expert in the US as well as in the foreign jurisdiction.

As for legal issues - contracts are handled internationally all the time with ease. But liability issues vary dramatically from state to state and even more from country to country.

For a start up, unless the nature of the business is very liability intense, I would focus on the tax issues. As this article has shown, tax can be really, really expensive.

It would help to read this Wikipedia article to better understand this post. The post is based on court filings addressing personal jurisdiction in an internet case. It seems California has weighed in on the subject and knowing what they are looking for helps to understand the nature of the arguments. http://en.wikipedia.org/wiki/Personal_jurisdiction_in_Intern...

It can, actually, get much worse. While cross examining the other side, the opposition attorney can, and often does, state an assumption in the middle of a question that misstates a fact. If you don't object, then that statement becomes fact. In other words, every statement made must be considered. Is this something I am willing to allow?

It seems that we want to think of a world that is logical and populated with verifiable facts. However, the world of the lawyer is fundamentally illogical (as are most humans most of the time) and facts only exist when either agreed to by the parties or determined by judge or jury. As a result events that you or I would consider to be unquestionably true may end up being not facts. I have seen this in supreme court opinions, appeals, and bench (judge-not jury) cases.

Sony knows this well. They have tons of money to throw at lawyers. Generally speaking, the more money spent, the more likely you will win.

The word "justice" is never used in law school.

Good post!!

At the risk of being simplistic, I have long believed that in the world of business there are two types of people -- those who use and enjoy risk and those who are risk averse. Often those who are risk averse become employees, even academics. Those who enjoy risk become business owners, usually preferring the process of start up. This is why, if you are a risk taker, you don't really enjoy being an employee.

The government employees who try to encourage start ups belong to the second category and cannot for the life of them understand the risk takers. So, they are more likely to view success as a lack of failure.

Most bankers (Who recently forced a rewrite of the bankruptcy code to benefit their business.) have little or no use for risk. They are of the "employee" mentality. (not all, but it is common) As the article points out, this reduces the number of start ups.

It might help to take Chris Martneson's Crash Course (www.chrismartenson.com) where he makes it clear that inflation is necessary under the present Federal Reserve system. Although Chris was a biological scientist before being an internet content provider, he has a pretty good way of describing the economics behind the Fed. It doesn't take a conspiracy theory to address the fairly human activities of the superbanks. Activities that vastly increase their power and in no noticeable way improve our lives. They don't have to conspire. In fact, they are often vicious competitors. Anybody tried to get a home mortgage lately? Hard to get, now. And why? The banks get free (as in no interest) loans from Treasury which the Fed will pay interest on. So they loan it back to the Fed to get paid interest. Why take the much higher risk of loaning us money to buy or refinance a home?

re: "The uncoupled securities now do not just include derivatives but also commodity contracts as exchanges no longer have the limits in place of having actual products to enter into those contracts." This is a subject of great debate among commodity followers, including silver and gold. See many, many discussions regarding the CFTC rules (or lack of same) around "naked" short positions--a method whereby huge banking institutions can create a false "demand" and reduce the price. Lately, it appears, (Though not verified.) that there isn't enough silver to actually meet the contracts held by people or institutions who want actual delivery. In the past, the speculators and huge banks would exit the fray before it became time to actually deliver the goods. However, rumor has it that the actual supply of real silver is so tight and the buyers (the longs) are sticking to the end, that the shorts cannot find metal to deliver and are paying off in cash. (at, of course, a premium) Its fun to watch -- harveyorgan.blogspot.com/ being one of many places. Another source is zerohedge.com. I am only touching on a much larger drama, but it looks like this is one place where the bankers are taking a hit.

Seems like people would be interested in knowing how many potential suitors were watching their status and waiting for them to become available. You can envision this as the new status symbol. Instead of how many friends you have, it would be how many people are on your notifier list. In fact, some of those people being followed might jump ship earlier knowing that there are plenty of others waiting in the wings.

According to the IRS (I am a tax attorney/accountant) any officer of a corporation is a "statutory" employee. Anything of value that the corporation gives to that person is construed as wages -- subject to SS tax, medicare tax, federal unemployment, and all the rest of the employee/employer law. (which varies by jurisdiction, but is almost always expensive and onerous). In fact, anything of value that goes to a person related to that officer is wages to the officer. Stock, par or no par, usually has some value. Those are wages.

Just as note to add dark humor to the subject -- note that in the law the employer/employee relationship is called "Master-Servant."

This is my first post on Hacker News. Glad to join you guys and see that you're talking about finances. I'm an accountant who is also a tax and business lawyer, specializing in micro businesses and creative projects. Hopefully I can contribute to the discussion.

This community is full of people who know how to hack code. I'd like to introduce the idea that it's possible to be equally creative with business entity design. Business laws and tax codes are just other types of codes, waiting to be hacked.

Corporations are one way to organize and that structure is well-suited to mature businesses. But it's far from the best format for beginning creative enterprises. It seems to be widely accepted that start-ups need to be corporations to make the transitions smoother as more investors are added down the line. It's time to reconsider that.

Start-ups have completely different needs than mature businesses and should not be strangled by all the baggage that comes with a corporation, in the name of 'making a smoother transition.'

It is fairly simple to start with an organization that is NOT a corporation and, thereby, avoid payroll taxes. Possibly ALL taxes, depending on the structure and the source of cash. This is particularly true if you are going to give equity anyway.

Do some research on entity choice. Examples might be a Limited Liability Company, Limited Liability Partnership (in some jurisdictions), Limited Partnership, Limited Liability Limited Partnership (also only in some jurisdictions), even go naked as as simple Partnership or Joint Venture.

By the time you're big enough to go public, you'll be able to afford the lawyers you need to reorganize. And that will be the least of your concerns. In the meantime, pick a business structure that is well-suited to your current needs, and can even help with some of your current headaches, like salaries, taxes, and cash flow.

So, yes, a good accountant will pay for themselves many times over. So will a good lawyer. Finding a good one is the real challenge.