Company Structures*

Basic Concepts for Startups

& Venture Capital

*This is related to business practices and it is not a legal advice

Investments Funds
● Angel Investment
● Venture Fund vs Private Equity Fund
● LP: Limited Partnership
● GP: General Partner
● SPV: Special Purpose Vehicle
● Syndicate: Lead
● Crowdfunding
● Angel´s List
Colombia vs International Fund (Delaware/Cayman)
● Estructura fondo en Colombia ● International Fund Structure
○ Gestor Profesional ○ Limited Partnership
○ Financiera/Administradora ○ General Partner
○ Proveedor de precios ○ Management Company
○ Comite de inversiones
○ Comite de Vigilancia
Colombia vs International Fund (Delaware/Cayman)
● Costos de un fondo en ● Costs of International Fund
Colombia ○ Management Fee
○ Management Fee GP ○ Carried Interest
○ Carried Interest
○ Fee for Financiera
○ Fee Proveedor de precios
Tax implications for Investors
● Tax Heaven

● Capital Gains Tax

● Federal Income Tax

● State Income Tax

● Anti-money Laundry Laws

● Committee for Foreign Investment in US (CFIUS)

Common Investment Instruments
● Convertible Note
● SAFE: Simple Agreement for Future Equity (Y Combinator)
○ Discount
○ Valuation Cap
○ Discount or valuation
● KISS: Keep it simple Security (500 Startups)
● Stock Purchase Agreements
● Restricted Stock Purchase Agreements
● Warrants
Basic Terminology
● Term sheet
● Liquidation Preference
● Anti-dilution
● Investment Instruments
● Vesting
● Vesting acceleration
● Cliff
● Stock Options Pool
● Pro-rata right
● Information, Transfer and drag-along rights
● Original Issuing share price
● Lead Investor
Startup definition
● Startup: an organization designed to look for a business model
that is repeatable and scalable. A startup is a company designed
to grow fast (exponential growth). Being newly founded does not
in itself make a company a startup. Innovation, disruption and
technology are usually associated components but not necessarily
it is a requirement. An Startup is not an Small Business (not a
Mypime).
Some basic definitions
● Company type: Ownership by shares or by participation rights. i.e:
○ In USA, Corporation, LLC, Partnership
○ In Colombia: SA, SAS, LTDA

● Legal Jurisdiction: Authority given by law to a court to try cases and rule on
legal matters within a particular geographic area or subject matter.
○ USA - By state Delaware, New York, California, Florida
○ Colombia: National laws
○ Cayman Islands
○ Panama

● Taxation: When a taxing authority, usually a government, levies or

imposes a financial obligations.
○ For profit, Non for profit, Cooperative
○ Income, corporate, capital gains, property, inheritance, and sales.
What Company type?
● What is your capital financing strategy?
○ Bootstrapping & Organic Growth
○ Family, Friends and Founders (only)
○ FFF + Venture Capital
○ Venture Capital

● What is your growth projection

○ Incremental or linear growth
○ Fast or exponential Growth
What Company type?
● Partnership, Limited Liability or Corporation
○ Partnership: Defined by partners agreement, typically among individuals with
same commitment.
○ Limited Liability Company: The company ownership is based on percentages
of participation of their members with the percentages negotiated among
them (normally static). In USA an LLC can pay taxes as partnership or as a
corporation. In Colombia LTDA pay taxes as a corporation.
○ Corporation: The company ownership is based on shares that can be easily
issued, sold or subscribed by founders and investors based on the concept of
price per share and type of stock (common, preferred, restricted, etc). Quick
to add new shareholders.
Where to incorporate / organize?
● Where are your investors?
○ Local only (Colombia)
○ Latin America
○ USA
○ Asia, Europe, etc.
○ All of the above
● Where are your customers?
○ Local only (Colombia)
○ Latin America
○ USA
○ Asia, Europe, etc.
○ All of the above
● Where is your team?
○ Local only (Colombia)
○ Latin America
○ USA
○ Asia, Europe, etc.
○ All of the above
Where to operate?
● Where are your investors?
○ Local only (Colombia)
○ Latin America
○ USA
○ Asia, Europe, etc.
○ All of the above
● Where are your customers?
○ Local only (Colombia)
○ Latin America
○ USA
○ Asia, Europe, etc.
○ All of the above
● Where is your team?
○ Local only (Colombia)
○ Latin America
○ USA
○ Asia, Europe, etc.
○ All of the above
How to contract the team?
● Local Subsidiary (Colombia)
● Labor contract
● Independent Contractor
● Intellectual Property protection
● Ownership of the subsidiary
● Restricted Stock Purchase Agreement
● Stock Option Pool
Corporation vs LLC
CORPORATION LIMITED LIABILITY CO.
1. Can issue shares 1. Can’t issue shares
2. Common & Preferred Stock 2. Membership types
3. Shareholders 3. Company Members
4. Articles of Incorporation & 4. Articles of Organization and
Bylaws Operating Agreement
5. Certificate of Incorporation 5. Certificate of Formation
6. Taxes as C-Corp or S-Corp 6. Taxes Partnership or S-Corp
7. Standard documents like 7. No standard documents for future
SAFE & Convertible Notes equity or Convertible debt
8. Ready to receive Venture 8. Not ready for Venture Capital
Capital investment investments
Delaware vs Cayman Islands
DELAWARE CAYMAN
1. Preferred by US & 1. Preferred by Chinese &
Canadian Investors other Int’l Investors
2. Very well known standard 2. Less known standard
documents documents
3. Easy to incorporate 3. Requires professional
(Optional DIY) assistance
4. Abundant courts cases 4. Not that many court cases
5. Less expensive 5. May be more expensive
6. Many lawyers available 6. Less lawyers available
7. Known process for IPO 7. Potential benefits for IPO
8. Subject to CFIUS rules 8. Not subject to CFIUS rules
Florida vs California
FLORIDA CALIFORNIA
1. No personal Income Tax 1. Personal Income Tax
2. Lower State Franchise Tax 2. Higher State Income Tax
3. Sales Tax 6 to 7% 3. Sales Tax 7.25%
4. Easier to register 4. Requires extra steps
Quick guide for Latam Startups
Try with a Form a loca
partnership SAS (or Ltd)
agreement Incorporate a
No Company in
Has product No No Delaware
& business Targeting Targeting US
multi-country Form a
No model Yes market with
market Delaware or
Yes foreign investors
(US / Latam) Florida LLC Consider
Looking for owning more
Yes Cayman Islands
Venture than 40%?
No due to CFIUS
Capital? Try partnership
agreement Looking for
Yes No unless already US investors Incorporate D or
Has product have investors C as per anchor
No
& business Yes investor prefers
model Yes Targeting US
Looking for market + Latam,
Yes Incorporate a
International Incorporate a
Investors No SAS in Yes Company in
Colombia Delaware

Note: This is a business perspective and do not represents legal advice

Tax Implications
● For the operation
● For the investors
● For the founders
● For the employees
● At the exit
● Pass-trough
● S-Corp vs C- Corp

Voluntary Revocation: A corporation can convert from an S corporation to a C corporation at any time. However,
to be effective on the 1st day of the corporation’s taxable year, the corporation must revoke its S election by the
15th day of the 3rd month of that tax year.
 Thank you !

Hernando Barreto
hernando@socialatomgroup.com
+1 954 2704991