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Startup Company Form: LLC or S-Corp? Which is easier and which is better?

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Re: Startup Company Form: LLC or S-Corp? Which is easier and which is better?

#21

Post by lindsayrgwatt »

timg wrote: post #19
lindsayrgwatt wrote: post #10

Earlier quoted context omitted.

You should be able to get your annual fees down below $300 - it should only be about 1/2 that

edit: you are correct.

Maybe I'm wrong, but I read the page above differently from you. The $200 fee applies to LLCs, Limited Partnerships or General Partnerships.

You're a C-Class Corp right? Therefore you pay the corporate franchise tax. If you go to the link on the page entitled "Franchise Taxes Here": http://corp.delaware.gov/frtaxcalc.shtml

it tells you what it should be. Your fee will vary depending upon how many shares you have outstanding, but I'm guessing you have less than 3,000 therefore it will be $35.

Re: Startup Company Form: LLC or S-Corp? Which is easier and which is better?

#22

Post by gibsonf1 »

pg wrote: post #20
gibsonf1 wrote: post #16

Earlier quoted context omitted.

Our actual product is different than our original idea when we formed the LLC although it uses technology from the original. What do you think of the idea of forming a C corp for the new application that is then owned initially by the LLC? (Our idea is to have core technology provided by the original LLC to a series of applications)

These multi-company organizations are almost always a bad plan. And even if they weren't, all investors think they are, so this sort of thing is a big red flag.

Thanks, that is good to know. So if we create a new C corp with our new application and build in an API, then create an add-on service with our original LLC later that can add value to the new application, the investors would be less worried?

Re: Startup Company Form: LLC or S-Corp? Which is easier and which is better?

#23

Post by pg »

RyanGWU82 wrote: post #17
pg wrote: post #9

Ordinarily a startup should be a C corp. It's cheaper to be an LLC, but if you plan to succeed, you may as well do things right from the start. With an LLC profits don't get taxed twice like in a regular corporation. So it makes sense to be an LLC if you expect to have substantial profits, but don't expect to grant options, sell shares, or get bought. Consulting firms and law partnerships are often LLCs. YC is an LLC…

The big reason why C corps are preferable is because S corporation shareholders can only be people -- not other businesses, like VC firms. (S corps also can't issue preferred stock.) An S corporation can't take venture capital without first reverting back to C corp status. But an S corporation can save a lot of money on taxes. But although many of our businesses want venture capital, most are unlikely to get it. In f…

The startups we've seeded are more likely to get funding than to consult on the side. When they do consult on the side they do it as individuals, not as the company.

Re: Startup Company Form: LLC or S-Corp? Which is easier and which is better?

#24

Post by shiro »

nickb wrote: post #18

VCs want to invest into a C-corp because it allows them to have a flexible share structure so if you're seeking VC money, C-corp will be a must. But, in the mean time, you CAN use S-corp since it is easy to set up and gives you some protections. S-corp can be easily converted into a C-corp (a single supplemental form!). LLC is not as easy to convert to a C-corp and paperwork is fairly complex and will cost you severa…

.. or resident aliens. http://www.irs.gov/instructions/i2553/ch01.html

Re: Startup Company Form: LLC or S-Corp? Which is easier and which is better?

#25

Post by RyanGWU82 »

gibsonf1 wrote: post #22
pg wrote: post #20

Earlier quoted context omitted.

These multi-company organizations are almost always a bad plan. And even if they weren't, all investors think they are, so this sort of thing is a big red flag.

Thanks, that is good to know. So if we create a new C corp with our new application and build in an API, then create an add-on service with our original LLC later that can add value to the new application, the investors would be less worried?

If you're creating a corporation, why not just disband the LLC? Why keep two company structures?

Re: Startup Company Form: LLC or S-Corp? Which is easier and which is better?

#26

Post by gibsonf1 »

RyanGWU82 wrote: post #25
gibsonf1 wrote: post #22

Earlier quoted context omitted.

Thanks, that is good to know. So if we create a new C corp with our new application and build in an API, then create an add-on service with our original LLC later that can add value to the new application, the investors would be less worried?

If you're creating a corporation, why not just disband the LLC? Why keep two company structures?

The issue is that we have a code base for the first company (Coding started about 6 years ago) that we want to develop into a different and much bigger product. The problem is much harder than our current startup, and we wanted to use the startup to help finance the bigger problem. We want to leave open the option of selling the startup and don't want to risk having to give up the legacy code and ideas which we think could be a dramatically bigger company. (The first company owns all that code). Once we develop the first ideas under the LLC further, we would have to convert it into a C Corp before going for investment. In the meantime, the LLC can own that code at low expense.

Re: Startup Company Form: LLC or S-Corp? Which is easier and which is better?

#27

Post by chwolfe »

dpapathanasiou wrote: post #6

Dharmesh Shah wrote about this recently: http://onstartups.com/home/tabid/3339/bid/1303/Startup-101-Should-You-Form-An-Inc-or-LLC.aspx

From the article: "My personal practice has been to create an LLC (they are simple, avoid double taxation and still support multiple classes of stock if needed). If and when the time comes to convert the LLC to a C-corp, the process is not that difficult. Whatever costs you would incur in the conversion process, I think are offset by the upside you get during the time that you can benefit from being an LLC. An LLC can be setup for a few hundred dollars and likely meets the needs of most early-stage entrepreneurs."

Re: Startup Company Form: LLC or S-Corp? Which is easier and which is better?

#28

Post by RyanGWU82 »

gibsonf1 wrote: post #26
RyanGWU82 wrote: post #25

Earlier quoted context omitted.

If you're creating a corporation, why not just disband the LLC? Why keep two company structures?

The issue is that we have a code base for the first company (Coding started about 6 years ago) that we want to develop into a different and much bigger product. The problem is much harder than our current startup, and we wanted to use the startup to help finance the bigger problem. We want to leave open the option of selling the startup and don't want to risk having to give up the legacy code and ideas which we think…

Well, you know more about your situtation than I do, so I'm not going to second-guess your strategy. But this does sound a little complex -- too complex for YC News to be much help. A $200 consultation with a lawyer might prevent a big headache later.

Re: Startup Company Form: LLC or S-Corp? Which is easier and which is better?

#29

Post by davidcatalano »

To me the answer is simple: If you are looking to be VC or angel funded yet are just starting out then you should save the money and start an LLC. If you don't plan on VC funding then stick w/ an S Corp.

In 1999 we had an LLC and we converted it to a C Corp just before we acquired funding in 2000. This time around I'm a partner in an S Corp and am self-funding it. If my current situation changes, as someone already mentioned, it will be easy to change over to a C Corp.

Re: Startup Company Form: LLC or S-Corp? Which is easier and which is better?

#30

Post by gibsonf1 »

RyanGWU82 wrote: post #28
gibsonf1 wrote: post #26

Earlier quoted context omitted.

The issue is that we have a code base for the first company (Coding started about 6 years ago) that we want to develop into a different and much bigger product. The problem is much harder than our current startup, and we wanted to use the startup to help finance the bigger problem. We want to leave open the option of selling the startup and don't want to risk having to give up the legacy code and ideas which we think…

Well, you know more about your situtation than I do, so I'm not going to second-guess your strategy. But this does sound a little complex -- too complex for YC News to be much help. A $200 consultation with a lawyer might prevent a big headache later.

Good point - can anyone recommend a good lawyer who is not outrageously expensive?
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