Selecting the Right Entity for Your Tech Startup

Nebraska, and neighboring Midwest states, have developed a reputation as the “Silicon Prairie,” a prime location for technology startups. The recent tech startup boom in the Midwest can be attributed to the lower cost of living, knowledgeable tech labor force, and willingness of the community to embrace the startup. For many of these startups, besides the intense need to develop and protect the technology, a common issue is picking the right business entity structure.

 

In picking the right entity for the startup, several considerations should be weighed, including the need for liability protection, how the company will fund operations, and the most beneficial tax status. For example, if a tech startup is developing a product that will take a substantial period to produce, and likely need multiple rounds of equity financing involving institutional investors, with other funding coming through debt, the demand for classes of shares, preferences, and conversion rights, may require that the startup to form as a C-corporation, with corresponding tax status. On the other hand, if the startup only intends to have one round of equity financing, through a “friends and family” offering, a limited liability company may be appropriate, providing additional flexibility to select tax status.

 

Picking the right type of entity is important for the success of a tech startup, with many considerations to weigh. Ultimately, as facts change, it may be possible to change the structure of your company, but initial selection should not be taken lightly and can reduce problems as your company grows.

© 2017 Vandenack Weaver LLC
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100% Exclusion for Qualified Small Business Stock Held for Five Years

Starting a small business is full of challenges and an entrepreneur will have many concerns, especially with ensuring adequate operating capital and meeting funding requirements. The federal government does recognize the importance of small business and the challenges faced by entrepreneurs, including cash issues, and reacted by making permanent the 100% qualified small business stock (QSBS) exclusion in December of 2015.

Originally, in 1993, Section 1202 of the Internal Revenue Code was enacted, encouraging investment in small business by excluding 50% of capital gains from the sale of QSBS held for 5 years. Over the years, the exclusion changed and evolved until 100% of capital gains from the sale of QSBS held for 5 years was excluded, if the required conditions were met. The 100% exclusion was set to expire at the end of 2015, but the exclusion was made permanent in the Protecting Americans from Tax Hikes (PATH) Act, enacted in December 2015.

The 100% QSBS exclusion, although permanent, is nuanced and the stock itself must be held for five years, be in a C corporation, be in a Corporation with less than $50 million of assets at the time the stock was issued, have acquired the stock at its original issue, and have over 80% of the corporation assets being used in the active conduct of a qualified business during the entire time holding the stock. Active conduct is similarly defined under the tax code, excluding investment vehicles, brokerage services, farming business, and other inactive business. For those looking to utilize the QSBS exclusion or attract new capital from investors under this exclusion, a proper evaluation should be conducted to ensure the stock qualifies.

© 2016 Vandenack Williams LLC
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Nebraska Voters Approve Minimum Wage Increase

By Eric W. Tiritilli.

The 2014 midterm elections saw a number of significant races and ballot measures across the country.  One of particular importance to Nebraska employers is Initiative Measure 425 which sought to raise the minimum wage in Nebraska.  This measure passed by a large margin.

As a result, beginning on January 1, 2015, the minimum wage in Nebraska will rise from $7.25 per hour to $8.00 per hour.  Then, beginning on January 1, 2016, the minimum wage will raise to $9.00 per hour.  Nebraska was one of four states in the 2014 elections that passed measures to raise their state’s minimum wage.

© 2014 Parsonage Vandenack Williams LLC

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2015 Wage and Investment Levels for Nebraska Advantage Act

Recently, the Nebraska Department of Revenue issued regulations to qualify for benefits under the Nebraska Advantage Act in 2015. The Nebraska Advantage Act, as amended in 2012, was designed to promote relocation of businesses to Nebraska, expansion of business currently in Nebraska, and general business investment within the state. In order to qualify for the tax benefits, the Department of Revenue issues annual investment and wage guidelines that must be met. The average annual wage and investment requirements for 2015 are as follows:

  • Tier 1: Investment of $1 million and a wage requirement of $23,979 for a minimum of 10 employees.
  • Tier 2: Investment of $3 million and a wage requirement of $23,979 for a minimum of 30 employees.
  • Tier 2 large data center: Investment of $1 million and a wage requirement of $23,979 for a minimum of 30 employees.
  • Tier 3: Wage requirement of $23,979 for a minimum of 30 employees.
  • Tier 4:Investment of $12 million and a wage requirement of $23,979 for a minimum of 100 employees.
  • Tier 5: Investment of $37 million.
  • Tier 5 renewable energy projects: Investment of $20 million.
  • (Super) Tier 6: Investment of $11 million and a requirement of 75 new employees; or an investment of $111 million and at least 50 new employees. The wage requirement is a minimum of $58,948.

Other incentives built into the same law have been updated to require a $12.33/hour minimum to qualify for the Nebraska Advantage Rural Development Act and $1,154/week maximum to qualify for the Nebraska Advantage Microenterprise Tax Credit Act.

© 2014 Parsonage Vandenack Williams LLC

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Can Franchise Agreements Be Terminated or Not Renewed?

A Business FAQ with Mark A. Williams.

The simple answer is yes, franchise agreements can be terminated and that is pretty scary for somebody that owns a franchise business. The more complicated answer is that you have to look at your franchise agreement. Usually there are provisions in there that cover the renewal of the franchise and what happens if it is terminated.

There is also state and federal law that apply to franchises. In some states, the franchisor might not just be able to terminate your franchise even if the franchise agreement says they can.

Yes, franchise agreements can be terminated, they can be not renewed, but in almost every circumstance, whether it is by your franchise agreement or whether it is by law, you have some rights to renew and you need to make sure you pay attention to those rights when you get into a franchise relationship.

© 2014 Parsonage Vandenack Williams LLC

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What Law Governs When a Customer in Another State Buys My Product Over the Internet?

A Business FAQ with Mary E. Vandenack.

If you sell products over the internet, it is important to be aware that you are going to be subject to the laws and regulations of the state that you are located in, the states that you are selling in, and certain federal laws. There are going to be laws that govern your relationship with the persons who are buying your product, and there will be laws impacting you from a tax perspective so you are going to want to become familiar with each. It’s extremely important to give a lot of attention to your website terms and conditions. There are certain things that you can cover in those terms and conditions. You cannot get out of the application of different federal and state laws in those terms and conditions, but you can engage in certain aspects of control.

© 2014 Parsonage Vandenack Williams LLC

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What Law Governs Contracts With Foreign Entities?

A Business FAQ with Mark A. Williams.

The law that governs every contract is usually the law that the contract says. In  most agreements, there will be a provision in it that says if we get into a dispute, here is the law that is going to apply. If the contract does not say that, then there is a little bit of a problem. Every state has some laws and there are federal treaties with other countries, and those laws and treaties are supposed to work out whether it is the law of your state or whether it is the law of the foreign jurisdiction that is going to apply.

The important thing to think about is if you are going to do business with a company in another country, you really need to  make sure that in your contract, you specify what law is going to apply and what jurisdiction lawsuits are going to happen in so that if there is a dispute, you know how it can get resolved.

© 2014 Parsonage Vandenack Williams LLC

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