LLC vs. C corp for early stage company

Meetul Shah

November 4th, 2013

My co-founder and I in the process of launching a new company and were wondering should we form as a LLC or  C corp with the sub chapter S and when\if we want to take outside funding we can revoke sub chapter S. Speaking with few funded companies their recommendation was just form a C Corp in the Delaware. Speaking with one of the attorney it sound like its bit expensive to setup corporation in the state of Delaware

What would be your recommendation for a very early stage company? I want to make sure it’s cost effective and not gonna cost logistical\legal challanges plus allows us to get board of advisers and funding if we choose to

Thanks in advance

-Meetul.

Michael Barnathan

November 4th, 2013

There's no one-size-fits-all answer to this, but I've personally found it much easier from a tax and process standpoint to start the company as an LLC until it starts to acquire external shareholders (at which point you can transition it to a C corp).

Dave Sifry Head of Product at Addapp Corp

November 4th, 2013

If you are serious about taking outside funding as part of your plan, go directly for a C corp in Delaware, and file to do business in California. You'll pay more ufront, but it will save you oodles of time and expense redoing things later. Dave

Anonymous

November 4th, 2013

Clerky.com (a Y Combinator company) can help your setup your C-Corp in Delaware for $99 and provide you with post-incorporation documentations for $299.

Most (if not all) YC companies use Clerky to setup their C-Corp now.

Michael

November 4th, 2013

LLC from the initial will absolutely simplify the process from a tax basis and in getting off the ground and isolate you and your partners from any initial legal backlash as long as regulatory guidelines are followed.

Most , I wont say all, but I personally have never met an investor outside of personal investors who would touch anything investment wise for an LLC. Most will make you convert and transition, for obvious financial reasons as Michael B. Stated.

As for operating out of Delaware or any of the other "popular" business law friendly states its always initially cheaper but for example some states still require you to obtain a foreign entity filing to operate a business in your state that is registered in another, so the cost savings become negligible.

Not a lawyer, just some personal experiences I have had.

Vishal Kumar

November 5th, 2013

I used them for registering my company too. Then I switched over to Harvard Business for the registered agent service. They only charge 50 per year. Remember that you will also need to pay an annual fee of 250/- to the state of Delaware. 

Samir Patel Managed $1B+ in Ad Spend | Pioneer in bringing Big Data & Data Science to Marketing | Cornell MBA

November 6th, 2013

Meetul, go for C specially if you want to raise money. You can email anil at inventus law..he is our firm.

Chris Murphy Director of Corporate and Legal Affairs at E2open

November 4th, 2013

I agree with Jason. Yes you will have to convert almost always for funding, and that will cost you $2k+ usually. Just use clerky and be done with it for the same as an LLC. 

Rob Weedn

November 4th, 2013

I used the company corporation.  I think the incorporation was < $100, the fee for registered agent was like $239.  They have additional services if you want them to manage your filings, etc.  They turned it around in 24 hours, I remember.  Overall, pretty decent experience, no pratfalls. 

https://www.incorporate.com/

Robert H Lee

November 4th, 2013

Unlike most investors in Silicon Valley, I will tell you that the LLC first and then convert to C corp later is a reasonable strategy, if you think venture funding is a ways off. But many investors don't want to hear that, they want to hear scale fast right away, so why bother with the LLC. My recommendation to Derek Yu above is a good one for a lawyer to talk to about doing one, then later the other. Regards, Robert Lee Startup Consultant & Investor at SV Accelerator: SVaccel.com Entrepreneur-in-Residence at Stanford: codeX.stanford.edu ∩ of Technology & Adventure: facebook.com/HolokaiAdventure @goldspruce, linkedin.com/in/robertlee1 +1.510.427.2049 - California

Mark Piekny Engineer, Consultant & Entrepreneur

November 7th, 2013

The lean approach would have me form an S Corp only when I know I have an interested investor.  Delaware is not that expensive compared to other States.  The laws there favor business and the entreprenuer over the consumer.  I am not a lawyer, but this has been my conclusion based on research and networking.   Good luck!