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Why your startup should be a Delaware C-Corp, not an LLC

launch.gust.com

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Re: Why your startup should be a Delaware C-Corp, not an LLC

#161

Post by epc »

chrismaeda wrote: post #146
epc wrote: post #79

Earlier quoted context omitted.

The LLC issues the K-1 to the investors, you just attach it like the other 1099ish forms you receive from other sources of income (e.g. 1099-DIV).

As an angel investor, I don't want to deal with that kind of hassle. If the company is losing money, it may want to carry forward the tax losses to offset future profits. If the company is making money, are you also going to distribute cash to your investors to offset the tax liability you just threw onto them? Will you get my K-1 to me well in advance of the April 15 filing deadline so I can plan my taxes, or will y…

Which is entirely fair. I don't think I've ever received a K1 before April 15th, including from the venture funds I invest in.

Re: Why your startup should be a Delaware C-Corp, not an LLC

#162

Post by andrew_gust »

brianwawok wrote: post #138
andrew_gust wrote: post #110

Earlier quoted context omitted.

If they don't want to grant equity or take investment, sure. But doing one of those two things means the legal costs of starting with an LLC (which aren't standardized) substantially outweigh any tax savings, and almost no startups prior to that point have positive cash-flow anyway so taxed profits aren't much of an issue.

LLCs can grant equity just fine. Please don't spread FUD.

Sure, but there isn't an out-of-the-box mechanism to do that. You have to create a way to grant equity, which means you'll need to pay a lawyer—and hourly rates add up quick.

Re: Why your startup should be a Delaware C-Corp, not an LLC

#163

Post by staticautomatic »

andrew_gust wrote: post #162
brianwawok wrote: post #138

Earlier quoted context omitted.

LLCs can grant equity just fine. Please don't spread FUD.

Sure, but there isn't an out-of-the-box mechanism to do that. You have to create a way to grant equity, which means you'll need to pay a lawyer—and hourly rates add up quick.

Still FUD. Plus, making equity deals without consulting a lawyer is a bad idea regardless of your corporate structure.

Re: Why your startup should be a Delaware C-Corp, not an LLC

#164

Post by parkaboy »

biztos wrote: post #124

Probably a stupid question, but if you're bootstrapping a startup into which you might (but also might not) take investment at some point, wouldn't it be better to do whatever has the lowest cost and administrative overhead, and then sign over all its rights/assets/etc. to a fresh Delaware C-Corp when/if you have investors ready? So for example if you're in California you might do a California LLC until/unless you ha…

Yep, this is essentially what we did and worked out pretty well (assuming the operations/accounting under LLC stays super simple).

Re: Why your startup should be a Delaware C-Corp, not an LLC

#165

Post by kayef »

GoRudy wrote: post #117

Gust spends no time talking about what happens when you try and sell a C Corp. If it's a stock sale great... if it's an asset sale, incredibly not great... you will have double taxation. This matters. $10M paid to the company for an asset, turns into $6.5M after 35% corp taxes (using general numbers) and then $6.5M than distributed to shareholders, assume 30%+ (20% + state taxes + AMT (for now)) so $6.5M is now $4.55…

Start a company today, and if you're lucky, you'll sell it no sooner than 5 years. In that case, you'll most likely qualify for QSBS, which means you'll pay an effective rate of 0%. Only available for C-Corps. You're welcome.

Re: Why your startup should be a Delaware C-Corp, not an LLC

#166

Post by andrew_gust »

melvinmt wrote: post #118
tptacek wrote: post #5

You 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 takes less than an hour to get a Delaware LLC on the Internet Setting LLC's up is easy (even setting up a C-Corp is considerably easy) but for me the problem is always to maintain it and file taxes and other stuff on time etc. Is there any startup/service that helps me solve that problem?

Gust Launch, which is the product attached to this blog post, makes it extremely easy and quick to file as a Delaware C-Corp and set up the company, then follows it up with bookkeeping/accounting, equity management, and, yes, tax support. Among other things.

Re: Why your startup should be a Delaware C-Corp, not an LLC

#167

Post by brianwawok »

staticautomatic wrote: post #163
andrew_gust wrote: post #162

Earlier quoted context omitted.

Sure, but there isn't an out-of-the-box mechanism to do that. You have to create a way to grant equity, which means you'll need to pay a lawyer—and hourly rates add up quick.

Still FUD. Plus, making equity deals without consulting a lawyer is a bad idea regardless of your corporate structure.

Exactly. Too many people trying to push all starts into a Delaware X corp for their own gain. Not great blanket advice for everyone, do your own research.

Re: Why your startup should be a Delaware C-Corp, not an LLC

#168

Post by fapjacks »

LoSboccacc wrote: post #140
melvinmt wrote: post #118

Earlier quoted context omitted.

> it takes less than an hour to get a Delaware LLC on the Internet Setting LLC's up is easy (even setting up a C-Corp is considerably easy) but for me the problem is always to maintain it and file taxes and other stuff on time etc. Is there any startup/service that helps me solve that problem?

posting to watch. I know similar services on the old continent but there's no point in startupping in europe, it's just a mess all-around

You sound like you have experience running startup(s) in Europe. Can you be more specific here?

Re: Why your startup should be a Delaware C-Corp, not an LLC

#169

Post by icedchai »

fish2000 wrote: post #85

I haven’t got a ton of experience in this arena, but what I have done in the past is: 1) incorporate the larger venture as an LLC (“My Company, LLC”); 2) incorporate the specific project as a C-Corp (“My Company’s App, Inc.”) – my partners and I own the LLC, which controls the C-Corp, which holds the assets of the project. Specifically, this makes it easier if we want to sell ”My Company’s App“ to a Facebook- or Goog…

Has this separation actually paid off for you?

Re: Why your startup should be a Delaware C-Corp, not an LLC

#170

Post by GoRudy »

kayef wrote: post #165
GoRudy wrote: post #117

Gust spends no time talking about what happens when you try and sell a C Corp. If it's a stock sale great... if it's an asset sale, incredibly not great... you will have double taxation. This matters. $10M paid to the company for an asset, turns into $6.5M after 35% corp taxes (using general numbers) and then $6.5M than distributed to shareholders, assume 30%+ (20% + state taxes + AMT (for now)) so $6.5M is now $4.55…

Start a company today, and if you're lucky, you'll sell it no sooner than 5 years. In that case, you'll most likely qualify for QSBS, which means you'll pay an effective rate of 0%. Only available for C-Corps. You're welcome.

To expand on this as it's an important point and QSBS is the reason why VCs love C Corps... the deduction is the a HUGE benefit but also thanks to our tax system the deduction % is not static...

The % deduction you can take is entirely dependent on the year and sometimes month of when your stock is issued. For example we had C Corp stock issued in February 2010 so our FEDERAL deduction was 75% NOT 100% which it would have been if it was issued in November of the same year (Blah), also California no longer has the QSBS deduction so you still pay the 8%+ here.

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