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Chapter 2. First Steps > Choose an Entity for Your Business - Pg. 13

First Steps 13 Dana and Michael decided that the best structure for Double D would be an S-corporationbecause it would be quicker to get up and running than an LLC, but would also offer limited liability protection and pass-through taxation. Furthermore, since all of the owners will beemployees, they may be eligible for some tax benefits. Michael also mentioned that the company may eventually be inter- ested in reorganizing as a C-corporation and there are tax advantages to doing that as an S-cor- poration rather than as an LLC. Michael explained that the other documents Dana would need right away were all of the corporate filings, a set of bylaws, a stock purchase agreement, and employment agreements for thefounders. When Michael asked how the ownership would be allocated, Dana told him that thegroup was pretty dead set on splitting the stock five ways equally. She also said that thefounders wanted their stock to vest over four years. Michael agreed that this was a good ideaand told Dana that the group should file 83(b) elections within 30 days of the award date. Hetold Dana that his office could help prepare the documents for the founders. Michael asked Dana if she was sure everyone understood the impact of the equal ownershipdecision --that a gang of three could control the company with its majority. Dana asked ifthere were ways that everyone could share equally but without the risk of three owners hijacking the company. Mi- chael suggested that the bylaws could be written to require a supermajorityvote (for example, re- quiring 80 percent of the votes) for certain actions, like firing a founder. Michael took this information and drafted articles of incorporation, bylaws, and a restrictedstock purchase agreement that he thought would fit with this consensus-driven company. He emailed the documents to every founder and scheduled a meeting with the group to go over theagreements and answer any questions. The decision to start a company brings so much complexity and change that it can be easy to feel overwhelmed. Between the personal changes involved in self-employment and concern over lining