Note: You may also lose the ability to get local (state/city) tax breaks and government money if you are an out-of-state corp.
Why your startup should be a Delaware C-Corp, not an LLC
31–40 of 176 posts
Re: Why your startup should be a Delaware C-Corp, not an LLC
#32Spoiler alert: Gust is not your lawyer, don't take legal advice from them.
While yes, this isn't legal advice, I'd just like to add that the product and software were both built with heavy involvement from experienced startup lawyers.
Re: Why your startup should be a Delaware C-Corp, not an LLC
#33Here's something I'm curious about. First off, I understand that few of you are lawyers, and any of you who are aren't being paid by me so none of this constitutes legal advice. :) I'd certainly talk to a lawyer before acting on it in any case, I just can't wrap my head around how Delaware is such an advantage.
I read that Delaware C corps/LLCs are the way to go because they're inexpensive. I'm in Texas. It looks like Texas would consider a Delaware entity as foreign, and require me to pay additional fees to do business in Texas. So that would appear to nullify any cost savings, since (IIRC) that fee was larger than registering the entity here when I last checked (I.e. I could just register a Texas LLC for $300 vs. registering somewhere else and paying a larger fee to transact business here.)
Is that just another in Texas' long and growing list of stupid things? Or, if your business is internet-based, are you not considered to be doing business in Texas in the sense that a more traditional corporation would? Not sure how that'd make sense, but...
It looks like, according to BOC 9.251, transacting interstate commerce doesn't automatically qualify as doing business, so if you might argue that a majority of your transactions are interstate by virtue of you being internet-based, I wonder if that makes a difference? So I'm wondering if this is a way that Texas is strict that other states aren't because, as I understand it, other states charge significantly more for LLC filing?
http://www.sos.state.tx.us/corp/foreign_outofstate.shtml
Thanks.
Re: Why your startup should be a Delaware C-Corp, not an LLC
#34You can divide equity and issue incentive equity compensation at an LLC easily --- for less money than it takes to properly incorporate a Delaware C Corporation. We have an LLC with multiple classes of stock and vesting, and it took just a 20 minute call with our lawyer to get there. Our last company, Matasano, was an LLC for its entire lifespan (we eventually filed taxes as an S-Corp, but never reincorporated). LLCs…
It's pretty quick to set up a C-Corp too—it's much, much more annoying to change the LLC into a C-Corp when you do want to fundraise.
When it is time for fundraising, is it possible to just create a new C-Corp, then sell the assets of the LLC to the C-Corp? Are there major tax implications? Is it possible to sell the assets for a $1? Or would that be in violation of some tax rule?
Re: Why your startup should be a Delaware C-Corp, not an LLC
#35Most angel investors and VCs will also insist that your company be a Delaware C-Corporation for legal reasons I keep hearing this, but what are these reasons?
> Most angel investors and VCs will also insist If they do "insist" on this regardless of circumstances, it would not be ideal to partner with them since they clearly don't know what they are doing. And if you are partnering with someone, don't you want them to know what they are doing?
The list of VCs that insist on a C-Corp is essentially the list of VCs. So sure, you don't need to convert, but you won't ever be able to raise VC money without converting.
Re: Why your startup should be a Delaware C-Corp, not an LLC
#36Fun thing about Delaware: they have an equity court run by the state that functions as a secret arbitration panel. But instead of ruling in line with the law, they rule in line with what's deemed "fair," hence the name "equity court." Unfortunately we don't know how they rule so we can't run statistics on it. But if anyone would like to leak a data set, feel free to leave me a message in this thread
very interesting stuff how I get it.
Re: Why your startup should be a Delaware C-Corp, not an LLC
#37A Logical Fallacy: We did something we think might be right for us (but we don't really know yet), therefore everybody in the entire world should do exactly the same thing regardless of their circumstances, and divorced from whether or not this actually works for us or not.
I'm jaded to the point that I'm skeptical of any posts starting with the words "Why" or "How". It's creeping closer to the phrase "these n easy steps".
Re: Why your startup should be a Delaware C-Corp, not an LLC
#38There's legitimate reasons for wanting a C-Corp over an LLC, but we were an LLC for 7 years and almost nothing the author mentions was an issue: a) Legal liability? "Limited Liability" is what the LL in LLC stands for. b) Dividing ownership? If you keep things simple, like a 50-50 split, not a problem at all. c) IP ownership? What? Yes, if you're raising money you probably need a C-Corp, but if you keep things relati…
The page never says a. or c. There is even a venn diagram down near the bottom showing they both have these qualities. It's arguing for incorporation, and then specifically as a c-crop.
Ah ok. I was reading the subhead "how is a C-Corporation different from an LLC? Here’s the rundown." as implying that the content was right below that about the differences.
Re: Why your startup should be a Delaware C-Corp, not an LLC
#39Earlier quoted context omitted.
S-Corp is a pass-thru, so not acceptable to take outside money. The investor wants a C-corp. But home State or Deleware is debatable. I chose home State vs Delaware for tax reasons
LLC's are also passthrough by default, though you can elect another tax treatment easily enough. The problem with s-corps is that a valid s-election requires that all stockholders are humans. The presence of a business entity stockholder would void your s-corp status. Keep in mind that an s-corp is not a different kind of entity, it is just a corporation that has a valid election for passthrough taxation under subcha…
Yes. And sometimes the investment round you take is from a group of investors that have formed their own LLC - this one LLC takes smaller monies from investors and then, as the LLC becomes an investor in your Corp. So, their LLC need you to be a C-Corp. Or add each of the dozen+ LLC members to your own cap table, what a mess.
Re: Why your startup should be a Delaware C-Corp, not an LLC
#40Earlier quoted context omitted.
That sounds like a category error. Your individual and/or corporate actions happen in a legal jurisdiction - technology does not change that.
It'll be interesting to see "solutions" like that run into the first clashes with a legal system that is not inclined to accept "the software won't let us do that" as a valid excuse for not complying.
I tend to think about it the other way. I think it'll be interesting to see a legal system's first clashes with "code doesn't do that".