Incorporation Decision Matrix

SKILL 70: Incorporation Decision Matrix

Purpose

Know exactly where to incorporate, what entity type to use, and why — for every type of product Nick builds.

Decision Tree

Question 1: Will you raise VC/institutional investment?

• YES → Delaware C-Corp (virtually all VC firms require this)
• NO (bootstrapped) → proceed to Question 2

Question 2: Do you want pass-through taxation?

• YES → LLC (taxed as partnership by default, or elect S-Corp)
• NO (planning to reinvest profits, fine with corporate tax) → C-Corp

Question 3: Where to form?

Entity Options

Delaware C-Corp — Default for Fundable Startups

• Why: most developed corporate law, Court of Chancery (specialized business court with no jury), VC-standard equity structure, universally understood governance
• Cost: $89 filing + $300/year franchise tax minimum + $50–150/year registered agent
• Iowa operation: must also register as foreign entity in Iowa ($100) where Nick operates
• When to use: any product you might raise money for, sell, or take public; Agent Sparta if raising within 12 months
• Downside: franchise tax (minimum $300/year, can be much higher based on authorized shares); must qualify in Iowa

Iowa LLC — Default for Bootstrapped Operations

• Why: cheapest, simplest, pass-through taxation, no franchise tax, Nick's home state
• Cost: $50 filing + $60/year annual report
• Iowa corporate tax: 5.5% flat rate (C-Corp) OR pass-through to individual (LLC)
• Iowa individual income tax: 3.8% flat rate
• When to use: initial testing entities, side projects, UberKiwi-style bootstrapped products
• Limitation: VCs will not invest in Iowa LLC; requires conversion to Delaware C-Corp before raising

Wyoming LLC — Specific Purposes

• Why: DAO LLC recognition (first state to recognize DAOs), no state income tax, strongest asset protection (charging order is exclusive remedy)
• Cost: $100 filing + $60/year
• Note: Nick still pays Iowa individual income tax as Iowa resident regardless
• When to use: DAO wrapper for decentralized protocol, asset protection for crypto holdings

Delaware LLC — Holding Company

• Series LLC: available (Iowa doesn't have this) — multiple series with separate liability
• Cost: $90 filing + $300/year
• When to use: holding company structure with multiple product subsidiaries

Cayman Islands Foundation

• Why: protocol governance, non-profit structure for DAO, no beneficial owner (ideal for decentralized protocol)
• Cost: $10–25K setup + $5–10K/year maintenance
• When to use: global protocol governance for prediction market (Phase 3); NOT for tax avoidance (Nick is a US person — CFC rules apply)

Singapore Pte. Ltd.

• Why: Asia-Pacific operations, 17% corporate tax, well-regulated crypto jurisdiction (MAS)
• Cost: $5–10K setup
• When to use: serving Singapore/SEA users, MAS DPT license application

BVI Business Company

• Why: simplest offshore structure, 0% local corporate tax, privacy
• Cost: $5–15K setup
• Note: Nick is a US person — still pays US tax on controlled foreign corporations (CFC rules, Subpart F income)
• When to use: holding non-US IP, non-US operational entity for global users

Nick's Recommended Structures by Product

Agent Sparta (Skill-Based AI Competition)

• Bootstrapping → raising later: Iowa LLC now → convert to Delaware C-Corp when raising (costs $5–15K in legal fees)
• Planning to raise within 12 months: Delaware C-Corp from day one, register as foreign entity in Iowa
• Rationale: Iowa LLC avoids unnecessary cost if raise is uncertain; Delaware C-Corp eliminates conversion friction if raise is imminent

AI Prediction Market

• Phase 1 (free-to-play, US only): sub-entity under Agent Sparta's entity — no separate entity needed
• Phase 2 (paid, US): Delaware C-Corp subsidiary or separate Delaware entity for liability isolation
• Phase 3 (global, decentralized): Cayman Foundation for protocol governance + US Delaware C-Corp for US frontend/services + offshore entity for non-US users

AI Agent Token

• US-accessible tokens: Delaware C-Corp issues token warrants alongside equity SAFEs
• Non-US token launch: Cayman Foundation controls protocol; offshore entity handles token distribution to non-US persons; US entity handles US operations only

Perlantir Holdings Structure

Perlantir Holdings LLC (Delaware) — IP holding, intercompany licensing
    │
    ├── Agent Sparta Inc. (Delaware C-Corp) — skill competition platform
    │
    ├── [Prediction Market] Inc. (Delaware C-Corp) — US prediction market operations
    │
    └── [Protocol] Foundation (Cayman) — global protocol governance, token

• Each product is a separate subsidiary → liability isolation between products
• Holdings LLC owns IP → licenses to operating subsidiaries → centralizes IP ownership
• Separation protects: if one product has a regulatory problem, it doesn't take down the others

Conversion Paths

• Iowa LLC → Delaware C-Corp: form Delaware C-Corp, merge Iowa LLC into it (or asset transfer). Legal cost: $5–15K.
• Single entity → multi-entity: form subsidiaries as needed. Transfer assets via inter-company agreements with arm's-length pricing.
• LLC → C-Corp for VC: standard conversion, your attorney handles the paperwork. VCs expect this.

This is legal research and intelligence, not legal advice. Consult qualified legal counsel before taking action.