Forming an LLC
April 23, 2019
by a searcher from The University of Chicago - Booth School of Business in Chicago, IL, USA
Hello all -- is there any advantage to forming an LLC for the search in a particular state? I live in Illinois, but know that Delaware offers a number of advantages.
from The University of Chicago in Chicago, IL, USA
First, if you create an entity (whether LLC, corporation or otherwise), you should respect it as a separate entity and have a bank account and even separate FEIN. If you don't, then the benefit of having the legal entity for liability protection purposes could be lost.
Next, if you form a Delaware entity, you get the name you are using in Delaware, but that doesn't assure you the name in the local jurisdiction. Taking the original post from last year, the OP is in Illinois. If he creates a Delaware LLC, he gets that name in Delaware, but might not get the name in Illinois. It's worth checking that the name is available where you are based even if you do get a Delaware entity.
Further to the above, you might want to think about whether you'll need to qualify locally. If so, then forming a Delaware LLC for operation in Illinois could result in paying two states to do business if you need to qualify to do business in Illinois with your Delaware LLC. That's fine and we often advise it. That said, it's cost to be mindful of.
Finally, if the entity is just for you, then the risk of this decision is different than if you have a partnered search through one entity or if you plan to start raising capital into the entity. Once that happens, whole different ballgame. Once other people are in the entity with you, the various laws of the states will differ as to the rules of the road that govern your entity. That's when guidance like Jeff's above for example (i.e., that Delaware might have more predictable and better understood law) would come into play.
Again, every situation is different and these points are really just practical rules of thumb to consider in the decision. The reality is that it's probably a 5-minute conversation with a knowledgeable attorney and should be part of your efforts to build relationships with attorneys during your search. And most attorneys in the search space are likely to do it off the clock or as part of a fixed fee arrangement.
Good luck, happy searching!
Brian
from Stanford University in Honolulu, HI, USA