Pre-incorporation cost and business structure question.

Though I am not a tax attorney/accountant, I can preliminarily answer your questions. First and foremost pre-organizational costs are deductible, post organization. However, I believe that you can deduct initially up to 5K worth of such expenses, but the remainder will have to be allocated over a 15 year period. Hence, it is generally a better tax proposition to organize before incurring app development costs. I would definitely verify this with your accountant.

Secondly, I am not sure how income passed up from the sub corporation to the LLC would not incur any taxes. At the very least, such income as it is passed to the members of the LLC would be taxable events on those individuals' tax returns. It is true that the LLC itself will likely not subject that income to further taxation, if the LLC is being taxed as a partnership. Again, however, you should consult with a tax attorney/accountant.

Finally, I would seek advice as to the structuring of your entities and whether multiple entities are wise at this stage (e.g., a NY LLC will require a publication fee outlay of at least 1200 dollars, multiple tax returns, multiple contracts and legal fees, etc.). In addition, whether or not a C-corp is the best vehicle for equity investment depends on several factors, not the least of which is the long term equity model for your venture. Other factors include: Is this a venture that will require multiple rounds of capital? Will it be shopping the VC circuit? Will it be more of a one-time project venture for financing purposes? As a founder, do you plan on having additional management leverage through a holding company?

I hope this helps.

Disclaimer: This answer is for informational purposes only and does not constitute general or specific legal advice, nor create an attorney client relationship.

I am a tax attorney with a Master of Laws in Taxation from Georgetown. Pre-organization expenses are deductible to some extent--you should check the IRS regulations on this for a detailed answer. With respect to your corporate structure, there are a number of questions to ask before you decide on a final structure. If the holding company is going to have equity investors, I recommend using an LLC for that entity also, as it is a much more flexible entity for investors.

I represent many companies who raise capital, and we typically do it using the LLC structure. The dividends from a wholly owned subsidiary are not tax free, as the dividends are income to the parent entity. If the parent entity is an S corporation or an LLC, those dividends "flow through" to its owners. If the holding company is a "C" (regular) corporation, they may be subject to taxation at the corporate level, and then subject to taxation when distributed to the owners of that corporation as a dividend to them.

I suggest that you engage experienced tax and securities counsel for this. I am not licensed in New York, but would be glad to provide you with general advice.