How much do angel investors really care about where your company is incorporated and what sort of legal entity you have created?
Answers
Your friend or family member won't care, but professional investors usually do. If your Angel round is just seed funding and you plan to raise VC for Series A, just start out with a Delaware C corp and make your life easier.
Today's Angel investor is much more sophisticated than they were years ago. The critical aspect of where to incorporate is how favorable and easy is it to operate as a corporation. Delaware and more recently Nevada tend to be the better states to incorporate in. I agree with Dana, make it easy on you and the BOD and go with either Delaware or Nevada. Consult with your corporate counsel. Avoid having to do this again. It is not worth the time and cost.
I fully support Dana's recommendation that if you expect to progress to venture capital or private equity investment in the future, a Delaware "C" corporation is the entity of choice, so do it once and never worry about it again. If not, you should still organize in a State with business friendly laws - it is a good idea for you as the business owner as well as for a potential investor.
We are assuming that this is a US start up. I have seen entrpreneurs from india and New Zealand trying to raise money in the US. Investors prefer to invest in locally incorporated companies as this gives them more contact, visibility, and legal options in the eevnt of a need for recovery
While DE and NV are business friendly, you have to remember that being friendly to the business usually means friendly to
Picking a state of incorporation outside of your place of business will add additional cost and statutory and
All the answers given are accurate, I would just caution you that incorporating in Delaware can result in additional tax liability that you may not incur in other states. Delaware is popular due to long established corporate governance laws and judicial precedent. Business friendly statutes do not necessarily equal tax friendly statutes, especially if you expect to have significant capital structure.
The state of incorporation is not much of a concern to most angel investors. The state where you are going to do business would make sense and save money as you probably have to be registered there anyway. If you are planning to go public someday, then DE is definitely preferable, but you can always re-domicile to DE if that day comes. NV is good if the shareholders want to remain anonymous. As for type of entity, a 'C' corp is pretty standard if you are going to raise money. As Dana mentioned above, if you are going to be pitching venture capital firms for a Series A down the road, the DE incorporation shows you know what you are doing.
Without getting into a political debate, companies that expect to expand internationally should give serious consideration to establishing the parent company outside the US to take advantage of most countries' territorial tax systems that don't tax earnings outside the home country compared to the US that taxes earnings worldwide. This has become more important as the US unfortunately now has the highest marginal corporate tax rate (federal and state) in the world. Notwithstanding that investors may be reluctant to invest in a "foreign" company, even with management and headquarters in the US, it is one of the reasons foreign jurisdictions like Hong Kong, Luxembourg and London have taken the lead in IPO listings.