Defining Entrepreneurship: Starting with Customers

Starting with Customers

This Defining Entrepreneurship segment is a prequel to our segment on Types of Investment. We encourage you to watch this first to better understand our philosophy at Tech Ranch! Enjoy!

Hi, it’s Kevin Koym, Founder & CEO of Tech Ranch. Sometimes confusion comes about with all the popularity of lean startup practices that all the focus is on investment, but what I really want to talk to you about to day the importance of identifying and acquiring customers before going for funding. [Read more…]

Defining Entrepreneurship: Know Thyself

Looking in Mirror - Know Thyself

Check out the latest in our Defining Entrepreneurship series by CEO, Kevin Koym. “Knowing Thyself” covers the basics of understanding how your strengths and weaknesses will impact your venture and your future as an entrepreneur.

I’m here to talk to you about another topic in our Defining Entrepreneurship series. Today, we’ll discuss what it takes to be a successful entrepreneur. There are a lot of stereotypes when it comes to what defines an “entrepreneur”; some of them might be true and some of them I actually don’t think are true. Like this guy, do you have to be this arrogant beast to actually be a successful entrepreneur? You don’t. In fact, you don’t have to be that guy. The types of successful entrepreneurs out there currently are very diverse. [Read more…]

Free Legal Clinic for Entrepreneurs: Hosted by Tech Ranch, MWR Legal, LiftFund and Texas C-BAR

Austin Legal Clinic Pic

FOR IMMEDIATE RELEASE

Free Legal Clinic for Entrepreneurs

In an effort to accelerate business development in Austin, various groups will host a pro-bono legal clinic where business owners can receive consultation on topics like business formation, trademarks and patents

At a glance:

  • MWR Legal, LiftFund, Tech Ranch, and Texas C-BAR/Texas RioGrande Legal Aid are teaming up to provide a pro-bono legal clinic for entrepreneurs and start-up businesses
  • The clinic will take place on Thursday, September 17, 2015, from 6 p.m. to 8 p.m. at Tech Ranch

[Read more…]

Release: Tech Ranch and the Mean Eyed Cat Venture Labs Sign Licensing Agreement to Train Canadian Entrepreneurs

PR - Canada

For Immediate Release

Winnipeg-based Mean Eyed Cat Venture Labs has signed an exclusive licensing agreement with the Tech Ranch Austin to launch its entrepreneur development programs in Canada.  This start-up accelerator’s premiere development training will educate local tech entrepreneurs on how to navigate the early growth and development of their ventures.   The programs are designed to develop the skill sets of Canadian entrepreneurs in the areas of market fit, financial ability and business presentation.  First-time and exploring entrepreneurs from Winnipeg will also be referred to Tech Ranch’s online program.  Co-working space at the Tech Ranch in Austin will also be available to Canadian future business leaders so that they can pursue expansion into the United States or connect with American-based investors. [Read more…]

Guest Blogger Highlight: My Company is an S Corporation, Not an LLC.

SCorp

Original Publication

The Important—yet Elusive—Distinction between the Legal Form and Tax Classification of Entities

As a corporate and securities attorney, it’s part of my everyday to discuss the current or desired entity structure of a given company with clients and other industry professionals.  During those conversations, it’s not uncommon for someone to confidently describe to me a company’s entity type as an “S Corporation, not an LLC.”  Although most of these individuals have some working understanding of the pros and cons of an S Corporation, many of them don’t understand that an S Corporation has everything to do with how a company is taxed and nothing to do with the legal type of the entity.  Similar confusion sometimes arises when someone refers to a company being “taxed as an LLC.”  This is problematic because a limited liability company (an “LLC”) can be taxed as a C Corporation, S Corporation, or Partnership, but there simply is no pure LLC taxation scheme.

So, let’s discuss the distinction between the legal entity type and tax classification.  On the one hand, every company is classified as some type of legal entity.  This concerns how the state where the company is formed will recognize the company for legal purposes.  Common examples include sole proprietorships, general partnerships, corporations, LLCs, limited partnerships (“LPs”), and limited liability partnerships (“LLPs”).  In general, the type of legal entity of a company will determine how it is governed (i.e., who manages the day-to-day operations, who makes important decisions for the company, who is authorized to sign contracts on behalf of the company) and how it is owned (i.e., shares of stock, membership interests, and partnership interests).  This has everything to do with the basic corporate structure of the company.  In addition, the type of legal entity will determine the extent of personal liability its owners may have for the debts and liabilities of the company.  For example, in a general partnership, each partner is personally liable, jointly and severally1), for all debts and liabilities of the company, while the liability of owners (referred to as, “members”) of an LLC is generally limited to their respective investments into the company.

Now, onto how a company is classified for tax purposes.  This concerns how the government will tax the income, gains, and losses of the company.  Generally speaking, a company is taxed by the federal government either as a Partnership, a C Corporation, an S Corporation, or as a Disregarded Entity2).  The specific differences in how a company is taxed under each of these classifications is a discussion that we’ll table for another day, but in general:

  • C Corporations are subject to double taxation (i.e., the company is taxed on its income and gains, and then the shareholders are taxed again when they receive dividends)
  • S Corporations and Partnerships are subject to pass-through taxation (i.e., income, gains, and losses of the company are passed-through to each owner based on their respective ownership interests or other special tax allocation arrangement, to be taxed only once at the owner level)
  • Disregarded Entities are subject to essentially the same pass-through tax treatment concept as S Corporations and Partnerships

Where things start getting a little confusing for many is taking one of the legal entity types discussed above and determining its tax classification.  The Internal Revenue Code provides default tax classifications for entities, based primarily on the number and type of its owners.  However, most companies with two or more owners have the option to elect to be taxed differently than the default setting—and even change the tax classification over the life of the company.  To make it easier to understand, here is a basic table illustrating this concept for each legal entity type discussed above:

Legal Entity Type Default Tax Classification Tax Classification Election Options
Sole Proprietorship3) Disregarded Entity None
General Partnership4) Partnership C Corporation
S Corporation5)
LP Partnership C Corporation
S Corporation6)
LLP If only one partner = Disregarded Entity
If two or more partners = Partnership
C Corporation
S Corporation
Disregarded Entity7)
LLC If only one member = Disregarded Entity
If two or more member = Partnership
C Corporation
S Corporation
Disregarded Entity
Corporation If only one shareholder = Disregarded Entity
If two or more shareholders = C Corporation
S Corporation

Now that you know the distinction between legal entity type and tax classification, you are better equipped to select what type of entity your company will be and how it will be taxed.  If you have any questions regarding the content of this article, please contact me at mmcgovern@mwrlegal.com or (512) 320-0601.

LEGAL DISCLAIMER: This article is not intended to be, nor may it be used as, legal advice or tax advice.  This article shall be used solely for general, non-directed informational purposes.  No attorney-client relationship has been formed by virtue of this article and Moster Wynne & Ressler, P.C. has in no way agreed or consented to provide you with legal representation by virtue of this article.

Footnotes

1. Joint and several liability is a legal concept that, in the context of a general partnership, generally means that each partner is personally liable for 100% of the debts and liabilities of the company, even if those debts and liabilities were actually brought about by another partner and even if those debts and liabilities were incurred by another partner without the express permission of the other partners.
2. The term Disregarded Entity refers to a tax concept whereby the existence of a given entity ignored for tax purposes and its owner is taxed directly for all of the income, gains, and losses of the company.
3. A sole proprietorship can be comprised of only a single owner.
4. A general partnership almost always requires at least two partners.
5. Keep in mind that there are strict rules about the number and type of shareholders of an S Corporation.  Certain qualifications to make the election to be taxed as an S Corporation must be strictly adhered to or the tax consequences could be devastating.  In general, in order for a company to be eligible to be taxed as an S Corporation it must file the S Corporation election form and it must:

  • Be a domestic corporation
  • Only have shareholders who are individuals, certain trusts, and estates—no shareholder may be a partnership, corporation, non-resident alien, LLC, LLP, LP, or General Partnership
  • Have a maximum of 100 shareholders
  • Have only a single class of stock
6. The IRS has ruled that, in order for a LP to make an S Corporation election the general and limited partnership interests must have identical rights to distribution and liquidation proceeds in order to satisfy the single-class-of-stock requirement.
7. In order to make the election to be taxed as a Disregarded Entity, the electing company can have only one owner.

Mike McGovern

Michael S. McGovern is a Corporate Counsel at MWR Legal, where he uses his extensive legal and business background to represent companies, investors, and industry professionals in the areas of Corporate & Securities Law, Capital Markets and Private Placements, Venture Capital and Private Equity, Mergers & Acquisitions, Business Law, General Corporate Counsel, and Tax Law & Tax Controversy.

The TR Feed: Siddharth Gutta, Entrée

Restaurant Hostess

Last fall, Siddharth was in a downtown Austin restaurant with long wait times and slow service on a busy Saturday night. He noticed that the host was managing online reservations and marking table status’ with an iPad while trying to seat new guests, which seems to be a great setup except for the fact that the reservation and waitlist management app the host was using did not communicate with the restaurant’s older point of sale system, increasing wait times and frustration.

Seeing how this restaurant operated encouraged Siddharth to learn more about the software they used, according to him, ” I believed a system with table side ordering, better design, and integrated solutions would not only improve restaurant management but also make the restaurant experience better for guests.”

[Read more…]

Vote Now! Tech Ranch SXSW 2016 Submissions

Vote-PanelPIcker-Idea-2016-Instagram

Vote

Tech Ranch is excited to be working on a program for SXSW 2016 that will focus on our mission:

  1. Focus on the entrepreneur
  2. Building global bridges
  3. Creating social impact through entrepreneur interactions

You can help us make this an amazing experience for Tech Ranch, attendees and our international/local partners. Here’s how to vote for our submissions:

  1. Click on each session name below
  2. If you haven’t already signed up, get a PanelPicker login (you only have to do it once)
  3. Vote “thumbs up” for the session and comment on why you think it will be amazing!

[Read more…]

Being a Tech Ranch Intern

Jake 3

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My name is Jacob Smith I was the newest temporary addition to the Tech Ranch team, official title: Marketing Intern, unofficial title: supporter of all who need help. I am a senior (who luckily already got to walk!) at Long Island University Brooklyn, studying Marketing & Entrepreneurship. I am also the team captain of the Men’s Soccer team. I knew when deciding to play a division I sport in an environment like New York City my life would be very different. I felt confident being a collegiate athlete would prepare me for any career path I decided to pursue after college. The Early morning workouts partnered with a desperate sprint to class followed by a sluggish walk to training finished off with evening classes. The busy schedule, the constant rushing, the urge to always do your best, these things all become routine though sounding overwhelming one is able to find the motivation to adapt. The exhaustion was almost always physical, my summer internships were never going to challenge my physical capabilities but push my mental capacity and challenge my ability to produce creative and thoughtful work. [Read more…]

Entrepreneurial Ecosystem Development

Chile US

Entrepreneurial Ecosystem Development Summit Update – San Francisco, CA


An Ecosystem Update

As many of you know, Tech Ranch has actually not only done work in Austin, TX, but all over the world. This past weekend – Friday, Saturday, and Sunday – I was in San Francisco, meeting with a colleague from South America who I’ve worked with over the past 12 years.  I’d like to give you a very short glimpse into an Entrepreneurial Ecosystem Summit that we attended.  I also look forward to telling you what I learned about the entrepreneurial ecosystem in that part of the world.  [Read more…]