Ask HN: LLC vs. C-Corp

#1

Post by davidatyc » Thu, Aug 03, 2017, 1:45 AM UTC

What are the benefits of LLC over C-Corp? How do you issue shares to investors in LLC?

Why did Waymo start as LLC?

Re: Ask HN: LLC vs. C-Corp

#2

Post by patio11 » Thu, Aug 03, 2017, 1:54 AM UTC

I wrote a bit about this for the day job, but it's essentially same advice as I've given in ~10 HN comments over the years: https://stripe.com/atlas/guide#should-i-have-an-llc

You issue shares to investors by writing a process to do so into your LLC's operating agreement and then following that process when issuing shares; a lawyer can help you with this. Note that there exist investors who will not be willing to invest in an LLC because your operating agreement likely gives investors less protections and less certain protections than standard equity ownership in a C corporation; they may ask you to convert to LLC as a pre-requisite for taking investment. You will find this to be the market norm among e.g. sophisticated investors in Silicon Valley.

Re: Ask HN: LLC vs. C-Corp

#3

Post by Powerofmene » Thu, Aug 03, 2017, 1:56 AM UTC

patio11 wrote: post #2

I wrote a bit about this for the day job, but it's essentially same advice as I've given in ~10 HN comments over the years: https://stripe.com/atlas/guide#should-i-have-an-llc You issue shares to investors by writing a process to do so into your LLC's operating agreement and then following that process when issuing shares; a lawyer can help you with this. Note that there exist investors who will not be willing to inv…

Thought most corps that have investors are S corps?

Re: Ask HN: LLC vs. C-Corp

#4

Post by tehabe » Thu, Aug 03, 2017, 2:42 AM UTC

Waymo is not a startup but a subsidiary of Alphabet.

Re: Ask HN: LLC vs. C-Corp

#5

Post by davidatyc » Thu, Aug 03, 2017, 4:29 AM UTC

tehabe wrote: post #4

Waymo is not a startup but a subsidiary of Alphabet.

Ok, but why LLC? What are the benefits?

Re: Ask HN: LLC vs. C-Corp

#6

Post by davidatyc » Thu, Aug 03, 2017, 4:32 AM UTC

patio11 wrote: post #2

I wrote a bit about this for the day job, but it's essentially same advice as I've given in ~10 HN comments over the years: https://stripe.com/atlas/guide#should-i-have-an-llc You issue shares to investors by writing a process to do so into your LLC's operating agreement and then following that process when issuing shares; a lawyer can help you with this. Note that there exist investors who will not be willing to inv…

Thanks! You wrote: "They offer pass-through taxation, which may be more tax efficient in some circumstances". Can you give an example of when it is more tax efficient to be an LLC?

Why not start as LLC (for tax benefits), and change to C-Corp when we raise $100,000 from investors?

Re: Ask HN: LLC vs. C-Corp

#7

Post by patio11 » Thu, Aug 03, 2017, 5:22 AM UTC

davidatyc wrote: post #6

patio11 wrote: post #2

I wrote a bit about this for the day job, but it's essentially same advice as I've given in ~10 HN comments over the years: https://stripe.com/atlas/guide#should-i-have-an-llc You issue shares to investors by writing a process to do so into your LLC's operating agreement and then following that process when issuing shares; a lawyer can help you with this. Note that there exist investors who will not be willing to inv…

Thanks! You wrote: "They offer pass-through taxation, which may be more tax efficient in some circumstances". Can you give an example of when it is more tax efficient to be an LLC? Why not start as LLC (for tax benefits), and change to C-Corp when we raise $100,000 from investors?

A trivial example of LLCs being more efficient than C corporations for a sole proprietor is that, if you make a loss your first partial year running an LLC, you can deduct it against your personal income taxes incident to e.g. your employment for part of that year, whereas if you make a loss running a C corp, you would have to carryforward that to get a tax benefit from the loss.

I have to stay clear from giving tax/legal advice regarding particular situations, so I'm going to politely decline to answer the second question. Knock on wood, we'll have a better answer than that at some point.

Re: Ask HN: LLC vs. C-Corp

#8

Post by patio11 » Thu, Aug 03, 2017, 5:23 AM UTC

Powerofmene wrote: post #3

patio11 wrote: post #2

I wrote a bit about this for the day job, but it's essentially same advice as I've given in ~10 HN comments over the years: https://stripe.com/atlas/guide#should-i-have-an-llc You issue shares to investors by writing a process to do so into your LLC's operating agreement and then following that process when issuing shares; a lawyer can help you with this. Note that there exist investors who will not be willing to inv…

Thought most corps that have investors are S corps?

I don't believe this to be true; feel free to run it by your accountant or attorney. (Our accountants/attorneys reviewed the parts of the above guide which carry their imprimatur.)