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SE incubator legal options

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  • Sam Lam
    We are looking to set up an incubator of sorts where we establish SE ventures. I see two options: 1) Establish multiple corporations 2) Establish one
    Message 1 of 3 , Apr 27, 2006
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      We are looking to set up an incubator of sorts where we establish SE
      ventures.

      I see two options:

      1) Establish multiple corporations
      2) Establish one corporation, with multiple subsidiaries

      The second option would be more simple... less paperwork with savings on
      legal fees. If the subsidiaries become more substantial, maybe we could
      then spin off.

      Any thoughts?

      Thanks,
      Sam
    • Rolfe Larson
      Here are the comments in response to Sam Lam s search for structural options for an incubator to establish SE ventures. He mentioned two options: (a)
      Message 2 of 3 , May 2, 2006
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        Here are the comments in response to Sam Lam's search for structural options
        for an incubator to establish SE ventures. He mentioned two options: (a) Establish multiple corporations, (b) Establish one corporation, with multiple subsidiaries.

        (1) From Jim Fruchterman <jim@...>

        Since we [Benetech] run a nonprofit SE incubator, I would propose a third
        option:
        establish a single nonprofit corporation with multiple projects inside
        that corporation. This is easier than multiple corporations: single
        financials and audit (but where you can zip out the performance of a
        venture as a project). It's much easier to go through the IRS process
        once for a single nonprofit. Only invest the effort to spin something
        out as a separate corporation when it's become successful and needs to
        become its own entity for other reasons (better fund raising, risk
        isolation, etc.)

        If the primary goal is to set up for-profit social enterprises that are
        driven by the founding team, those should have their own legal entity
        rather than being entangled with the incubator...

        (2) From Gerald Solomon <gsolomon@...>

        A third is to use a fiscal sponsor and not incur any legal or accounting
        or audit costs, and to insulate oneself from all risk and liability.

        (3) From Allen Bromberger <allen@...>

        First of all, I assume by a "single corporation with multiple
        subsidiaries," you mean a holding company, since normally each
        subsidiary IS a separate corporation.

        Choice of corporate structure involves a lot of factors. You should make that decision only after considering the business model and making basic decisions about how you want your enterprise to operate. In other words, form follows function.

        For example, the answer to your question depends on what you mean by an "incubator of sorts." Will you be providing startup capital? If so, is it debt, equity or a combination? Will you provide back-office or management services? Business planning services? Are you renting space to new SE's? Do you expect to have a continuing relationship with the new SE's, or do you push them out of the nest at some point? Will you charge fees? How are you going to be funded or capitalized? Are these all for-profit entities, nonprofits, or a combination? Will the new SE's be doing business with each other or will they be completely separate? Etc., etc., etc.

        Not to be rude, but IMHO, anyone who would attempt to answer your
        question based on the superficial information you've provided would be doing you a disservice.
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