Business Entity Selection

To form your company, you’ll first need to decide which type of entity to become. In the United States, you can choose to be a sole proprietorship, partnership, Limited Liability Company (LLC), S corporation, or C corporation. There are different advantages and disadvantages to each depending on what your business will be doing and what your eventual goals are for the company. Generally, if you intend to build a large company, you’ll want to be an S corporation or a C corporation. S corporations have some tax advantages, but if you want to raise investment capital, be taken seriously by venture capitalists, or ever sell your company, it will benefit you to be a C corporation. It is generally accepted that Nevada is a good state to incorporate in for low taxes and privacy while Delaware is a good state to incorporate in if your intend to raise investment funding or sell your company, as it has business favorable laws, an extensive case history, and all corporate lawyers are familiar with Delaware law. Any U.S. resident can incorporate a company in any state he or she chooses.
When you incorporate, you can do it yourself, with the assistance of an online incorporation mill, or with a lawyer. It will cost about $200 to do it yourself, $300 online, and $1500 through a lawyer, and perhaps quite a bit more if you have more than one founder of the company. In all, Broadwick Corporation paid our law firm approximately $3000 for incorporation and all the initial start-up formalities. It was worth every penny for us, however, as we had six different founders and had a complicated capitalization table and vesting options.
To incorporate a company yourself, you’ll simply need to know the name of the company, the number of shares you wish to create, and which state you wish to incorporate it in. Once incorporated, you will receive your Articles of Incorporation from the State Attorney’s Office and a set of by-laws and stock certificates. Once this occurs, you contact the IRS to get an Employee Identification Number (so you can open a bank account and hire employees), choose whether to continue as a C corporation or file form 2553 to elect to be an S corporation, and hold your first board meeting.
I ended up meeting the Broadwick attorney through the Legal Issues for High Technology Start-ups MBA class I took in Spring 2003. If you do choose to go with a lawyer for incorporation and do not already know whom to choose, inquire about the following when evaluating each potential firm.

-    Reputation and references
-    Experience with start-ups/expertise (have they done it before)
-    Introduction to angel network
-    Access to venture capital firms
-    Library of precedents (firm as library of documents used before)
-    Potential employees/board members
-    Contacts in industry