Business
Company Name:
RotaCrutch
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Product Naming Convention:
Individual Products have unique names and brand lines. The initial full crutch device will be called the RotaCrutch Alpha. There will be a kids/small version called RotaCrutch Mini. The name for the attachment part only is still in the works.
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State of Incorporation:
California or Delaware (I live there, and Tax reasons, respectively)
Why Make a Business Entity?
Liability
The reasons for this are manyfold. Arguably the most important reason for the creation of a business entity is that of Liability. Shareholders and LLC’ers are generally not liable for any company debts or criminal prosecution. However employees and managers can still be charged for actions or inactions that cause harm or damage. This applies to RotaCrutch as much as any other company.
Taxes
For an LLC this is less of a structure, given that they function as pass throughs, meaning the individuals behind the LLCs are just taxed as normal individuals. It gets more complex for the corporation however, with C and S types.
Where a “C” Corporation is subject to corporate tax on net income as an entity, if a corporation elects to operate as an S corporation and meets several criteria, it can operate under pass through taxation, similar to an LLC, so if net income is paid to shareholders as dividends, the individual shareholders are taxed. RotaCrutch will likely need outside funding so should probably be a corporation.
Control
While in the management and control realm, an LLC or corporation offers flexible structure and has the individual and overarching management responsibilities outlined and specified in an operating agreement (for an LLC) or the bylaws (for a corporation) with specified structure of management, the shape of which is outlined in the aforementioned documents. Within a corporation, these managers and directors are elected by the shareholders.
The LLC Route
Q: Why would you find it favorable to create an LLC (as opposed to a corporation)?
A: For one, it's easier to create and more conducive to a small scale or solo business, which RotaCrutch currently counts as. Furthermore I would have no shareholders or managers or anything of the sort, so without employees, 100% of net proceeds would go directly into my pocket. An LLC then allows me to inject my own capital into the company.
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Q: In what capacity will each of your group members serve?
A: Welp at this point that would be me in every capacity. It truly is a one-clown-circus over here at RotaCrutch.
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Q: What document type would you file to create a limited liability company?
A: That would be the handy dandy "articles of organization" document or a "certificate of formation" with the state and then just paying a filing fee.
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Q: What document type would you create, after you have formed your limited liability company, to establish how your limited liability company is going to operate?
A: This would be an "Operating Agreement" which outlines pretty much everything in regards to management and structure and responsibilities.
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Q: Who in the limited liability company would create this document?
A: The intern. Hahaha just kidding I wish I had an intern. It would be me creating that document.
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Q: Who would need to ratify it?
A: All the founders/owners of the company. In this case, that amounts to me.
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Q:What provisions would be important to include in that document?
A: I would actually create a structure for multiple positions that I would fill all of myself at the moment, but that makes it easier to add other members down the line and merely assign them one of my former positions, without having to rewrite that operating agreement. These different roles would all have their duties and responsibilities outlined along with the structure of ownership, etc.
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The Corporation Route
Q: Why is a corporation as an enterprise entity type more suited for bringing in outside investment capital?
A: Registering as a corporation allows a company to raise capital by issuing stock (equity) and by borrowing money through loans or other debt instruments, so it allows for a lot more capital at the company's disposal. The creation of equity and shares is also a big deal as this allows them to be sold off , retained by staff, or by the company itself and grow in value along with the company.
Q: What document type would you file to create a corporation?
A: To get up and running with a corporation, one must file articles or certificate of incorporation with the respective state and then pay the filing fee.
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Q: What document type would you create, after you have formed your corporation, to establish how your corporation is going to operate?
A: This would be the Bylaws.
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Q: Who in the corporation would create this document?
A: That would be me in this case.
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Q: Who would need to ratify it?
A: Also me.
Q: What provisions would be important to include in that document?
A: Similar to the LLC, I would actually create a structure for multiple positions that I would fill all of myself at the moment, but that makes it easier to add other members down the line and merely assign them one of my former positions, without having to rewrite that operating agreement. These different roles would all have their duties and responsibilities outlined along with the structure of ownership, etc. Unlike the LLC, I would have to go about outlining additional things like a board of directors, the role of management positions, etc. I would also have to issue stock.