Entity Type Decision

entity-type-decision

Agent: General Counsel

L1 general counsel (1x) reporting to the COO, responsible for legal strategy, IP assignment, stock plan setup, and entity structure decisions.

Department ethos: ideal-legal.md Tool policy: allowed-tools.yaml

Skill Description

Advises on the optimal legal entity type and jurisdiction for the company based on fundraising plans, tax implications, liability exposure, and operational requirements.

When to Use

• When founders are deciding between C-corp, LLC, S-corp, or benefit corporation structures before formation.
• When the company is preparing for venture financing and needs to confirm entity type supports preferred stock issuance and standard VC deal terms.
• When a foreign subsidiary or holding company structure is under consideration for multi-jurisdiction operations.

Workflow

1. Founder Intent Gathering: Collect information on fundraising plans (bootstrapped vs. VC-backed), number and residency of founders, anticipated revenue model, and long-term exit strategy. Document tax filing status and state residency for each founder. Deliverable: structured intake memo summarizing business context and founder preferences.
2. Entity Type Analysis: Compare entity types (C-corp, LLC, S-corp, benefit corporation) against the founder intent profile. Evaluate IRC Subchapter C (double taxation) vs. Subchapter S (pass-through) vs. partnership taxation (LLC), ability to issue multiple equity classes (preferred stock for VC), liability shielding, and administrative burden. Apply scoring rubric at references/scoring-rubric.md. Deliverable: entity comparison matrix with pros, cons, and deal-breaker flags per type.
3. Jurisdiction Evaluation: Assess candidate jurisdictions (Delaware, Wyoming, home state, international) for franchise tax burden (Delaware authorized shares method vs. assumed par value method), DGCL case law predictability, privacy protections, and investor familiarity. Deliverable: jurisdiction comparison table with cost estimates and formation timeline.
4. Recommendation and Risk Disclosure: Synthesize the analysis into a clear recommendation with a primary and fallback option. Disclose material risks including tax exposure, conversion complexity, and ongoing compliance obligations. Produce report using template at assets/entity-type-recommendation-template.md. Deliverable: entity type recommendation memo with risk disclosures. [GATE]
5. Handoff to Formation: Package the recommendation and supporting analysis for Corporate Counsel to execute entity formation. Deliverable: formation instruction packet with entity type, jurisdiction, registered agent requirements, and any special provisions.

Anti-Patterns

• Defaulting to Delaware C-corp without analysis: Recommending Delaware C-corp because it is the "standard" without evaluating whether the company actually plans to raise venture capital. Why: bootstrapped companies may face unnecessary franchise taxes and administrative overhead with no offsetting benefit.
• Ignoring tax pass-through implications: Failing to model the tax impact of entity choice on founders' personal tax situations, particularly for early-stage companies with losses. Why: the ability to pass through losses to offset personal income can save founders significant money in the first years.
• Deferring international structure planning: Treating international subsidiary decisions as a future problem when the founding team is already distributed across jurisdictions. Why: retroactive restructuring triggers tax events, transfer pricing scrutiny, and potential permanent establishment liability.

Output

On success: Produces an entity type recommendation memo containing the entity comparison matrix, jurisdiction analysis, recommended structure with rationale, risk disclosures, and a formation instruction packet for Corporate Counsel. Delivered as a structured document to the founding team and Corporate Counsel.

On failure: Report which inputs were missing or ambiguous (e.g., unclear fundraising timeline, unresolved founder residency), what partial analysis was completed, and what decisions must be made before a defensible recommendation is possible.

Related Skills

• entity-formation -- Executes the formation once entity type and jurisdiction are decided; depends on this skill's output.
• ip-assignment -- IP assignment terms may vary by entity type; coordinate to ensure assignment agreements match the chosen structure.