C-corp · LLC

Bumping this to 2019: LLC or C-Corp?

Alison Childs Co-Founder/CEO of RSVP

Last updated on February 24th, 2019

We are self-funding our MVP (ticketing app) and hope to attract funding within the first year of operations. We’re using Stripe to handle payment gateway and Stripe Atlas to set up the DE company. Was recommended against using Stripe’s LLC bank and only through setting up a C-Corp do they set you up with a SVB account. Have seen equal arguments for LLC vs C-Corp on CFL and wanted to bump this topic to a more current environment: 2019. Is LLC the way to go if you’re self-funding for the first year? TIA!

Chris McCaw Cofounder,Architect. Expert in the area of microservices, cloud, and web.

February 26th, 2019

Not too much experience in this area but Investors will want you to have a C-Corp .Easier for them to manage taxes, shares, etc.I think LLC is fine before switching to C-Corp later

Paul Garcia marketing exec & business coach

March 4th, 2019

There are huge implications for your company choosing an LLC versus a C-corp (stock company). Remember that your corporate structure is about limiting liability. LLCs and C-corporations have entirely different governance requirements.


My personal recommendation would be that not a single dollar leave your pocket to go into the company until you have incorporated in some form. I can't see why you think you need to incorporate in Delaware.


Stripe is likely eventually going to cost you a lot more in processing fees than using one of the more traditional payment processors (like Chase Paymentech). Your fees will be based on your line of business (risk), average size of transaction, and monthly dollar volume. Be aware that you cannot jump from 0 to 1,000 in a short period of time. You will have to plan to ease into your merchant account and show a steady reasonable growth in transactions over time. Your account will freeze in a very bad way if you go from a few transactions to hundreds in a couple weeks. It's considered extremely risky by payment processors and it's prohibited. A real payment processing company can coach you through the warm-up process for volume so you don't get locked out of business.


Back to your question abour corporate structure... It's not at all clear what attracting funding has to do with your corporate structure. Investments are made in all corporation types. Having no incorporation today is the problem. I can't give you legal advice, but I can direct your attention to the vastly different requirements in governance for LLC versus stock corporations. There are also dramatic tax implications.


If for the time being you are self-funding, it's likely that a single-member LLC is adequate for your needs. It will not impede your ability to get funding. And if you need to convert to a stock-corporation in the future, consider that a future activity instead of bearing that burden so early. @Chris McCaw also mentioned switching later if it's a requirement. You're way too early to worry about investors. Get a product someone's actually interested in first. You can mature your corporate structure into something more complex later.

Jon Thorp Founder & CEO @NaxioInc, crypto enthusiast, visionary and thinker.

Last updated on March 16th, 2019

It depends on your goals. If you intend to attract established investors (angel or VC) then you absolutely must be a C Corp and probably should incorporate in DE.

Why?

I toyed with this very question a little over a year ago as I was first forming my company. My local legal counsel suggested that I incorporate within my state of residence (not DE) and form an S Corp since the filing requirements are easier and the fees are a bit cheaper.

HUGE mistake.

I have since had to jump through a ton of hoops to liquidate the assets of my old company, dissolve the company legally, and start a new one. If only I had gotten better advice I would have saved myself a ton of time, money, and headaches.

The simple fact is that established and institutional investors want equity, not partnerships. If you form an LLC anyone who invests money becomes a "member" rather than a shareholder. There are a pile of great articles about this very topic all over the net, but here's a good video explaining it.

Lisa Va Founder

Last updated on February 26th, 2019

mistake