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How much do angel investors really care about where your company is incorporated and what sort of legal entity you have created?

Roger Frederick's Profile

Answers

Topic Expert
Dana Price
Title: Vice President, M&A
Company: McGraw Hill Education
(Vice President, M&A, McGraw Hill Education) |

Your friend or family member won't care, but professional investors usually do. If your Angel round is just seed funding and you plan to raise VC for Series A, just start out with a Delaware C corp and make your life easier.

Topic Expert
Marc Faerber
Title: CFO
Company: Amarantus
(CFO, Amarantus) |

Today's Angel investor is much more sophisticated than they were years ago. The critical aspect of where to incorporate is how favorable and easy is it to operate as a corporation. Delaware and more recently Nevada tend to be the better states to incorporate in. I agree with Dana, make it easy on you and the BOD and go with either Delaware or Nevada. Consult with your corporate counsel. Avoid having to do this again. It is not worth the time and cost.

Topic Expert
Kent Thomas
Title: Founder
Company: Advanced CFO Solutions
(Founder, Advanced CFO Solutions) |

I fully support Dana's recommendation that if you expect to progress to venture capital or private equity investment in the future, a Delaware "C" corporation is the entity of choice, so do it once and never worry about it again. If not, you should still organize in a State with business friendly laws - it is a good idea for you as the business owner as well as for a potential investor.

Topic Expert
Simon Westbrook
Title: CFO
Company: Aargo Inc.
( CFO, Aargo Inc.) |

We are assuming that this is a US start up. I have seen entrpreneurs from india and New Zealand trying to raise money in the US. Investors prefer to invest in locally incorporated companies as this gives them more contact, visibility, and legal options in the eevnt of a need for recovery

While DE and NV are business friendly, you have to remember that being friendly to the business usually means friendly to management and officers and this can therefore means not so friendly to the investors.

Picking a state of incorporation outside of your place of business will add additional cost and statutory and tax compliance. If the company is not likely to enagage eminent non executve directors or go public in the forseeable future you may be just as well incorporating in your home state.

Wray Rives
Title: CPA CGMA
Company: Rives CPA PLLC
(CPA CGMA, Rives CPA PLLC) |

All the answers given are accurate, I would just caution you that incorporating in Delaware can result in additional tax liability that you may not incur in other states. Delaware is popular due to long established corporate governance laws and judicial precedent. Business friendly statutes do not necessarily equal tax friendly statutes, especially if you expect to have significant capital structure.

Edwin McGusty
Title: President
Company: Arnold & Constable
(President, Arnold & Constable) |

The state of incorporation is not much of a concern to most angel investors. The state where you are going to do business would make sense and save money as you probably have to be registered there anyway. If you are planning to go public someday, then DE is definitely preferable, but you can always re-domicile to DE if that day comes. NV is good if the shareholders want to remain anonymous. As for type of entity, a 'C' corp is pretty standard if you are going to raise money. As Dana mentioned above, if you are going to be pitching venture capital firms for a Series A down the road, the DE incorporation shows you know what you are doing.

Topic Expert
Jake Feldman
Title: Managing Director
Company: Global TaxFin Advisory Group LLC
(Managing Director, Global TaxFin Advisory Group LLC) |

Without getting into a political debate, companies that expect to expand internationally should give serious consideration to establishing the parent company outside the US to take advantage of most countries' territorial tax systems that don't tax earnings outside the home country compared to the US that taxes earnings worldwide. This has become more important as the US unfortunately now has the highest marginal corporate tax rate (federal and state) in the world. Notwithstanding that investors may be reluctant to invest in a "foreign" company, even with management and headquarters in the US, it is one of the reasons foreign jurisdictions like Hong Kong, Luxembourg and London have taken the lead in IPO listings.

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