Small Start-up - need advice

I recently started a company with two friends (equity split 3 ways) and we just confirmed 250k in seed funding. We are trying to figure out how to set up the company and pay ourselves out of this 250k without incurring too heavy of a tax burden. Anyone have advice on how to structure the company (LLC vs S Corp) or any other advice while we begin organizing everything?

Smallbusiness | 👁 1006 | Posted 2018-11-20 | Share on Facebook | Twitter | Google+

| Modified: 2018-11-20 | Author:


mustangsally14 2 years ago

What would the other solution be for equal equity?

Klexal 2 years ago

Someone's pointed this out below, but if you're planning on splitting equity equally, I would really recommend bringing on board two non-exec directors with voting rights. As you're going into business with friends, sometimes important business decisions can get quite personal/emotional, and those decisions aren't always made in the best interest of your company. As an example, your friends could quite easily gang up and outvote you on an important business decision based on emotion, rather than logical insight. If you boost your board of directors to 5 members, at least you have two impartial members that can offer a balanced viewpoint, and support notions that are beneficial to the business. Also make sure that you have a 'Right of first refusal' written into your contracts. If one of your friends decide to leave the business, they still own 33% of the business - so it's important that they can't sell their shares without offering you to buy them back first (otherwise you cuold have an equal partner ythat's a complete stranger).

SlytherinF1 2 years ago

The only thing I would add is that you should not be three equal partners. Or if you are it needs to be spelled out in credibly clearly who is in charge and who can be fired and who cannot.

mustangsally14 2 years ago

I don't think we plan on having true investors for a long time if ever. I appreciate the advice on handling shareholders agreements and such. Also as far as salary, part of the funding is for a year of decent pay for us all, so given that how do we best organize the tax structure? Can we do part of it as a draw and part as profit sharing?

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