There is always a lot of confusion around entity types (Sole Proprietor, LLC, C-Corp, S-Corp, B-Corp) and how you should form.
Let's clear some of that up. 👇
First and foremost, if you are doing business, you should have a legal entity of some type. Cross Sole Proprietor off your list.
A legal entity will protect your personal assets incase something goes wrong. Someone can sue for your company's assets, but not yours.
To clarify a point of confusion, you are never actually an S-Corp or B-Corp from a legal standpoint:
• An S-Corp is a tax designation from the IRS. It does not change whether you are an LLC or C-Corp.
• A B-Corp is simply a designation, something like a badge.
🧵 My personal perspective of investment terms founders should consider if things continue to get rough.
First, you need to recognize the past 5 or so years was way different than the 5-10 prior. We're in unpredictable territory.
For instance, the SAFE has become relatively standard. I know a lot of investors that hate the SAFE will rarely invest in one.
Liquidation preference.
1x or bust. If I see a 2x liquidation preference, I will want it, too. There's legit reason for investors to get paid out first, but not more than they invested.
Payouts should not be disproportional. Avoid investors asking for more.