Ask HN: LLC to c-corp?

https://news.ycombinator.com/item?id=1021111

by zaidf • 17 years ago

1 4 17 years ago

news.ycombinator.com

I'm about to form an LLC for my startup so we can sign our first contract with a client. Right now I am not leaning towards raising $. There is probably a 25% chance that I will seek funding in the near future. Does anyone know how much of a headache it would be to change from LLC to a c-corp in the future? Are you looking at hundreds or thousands more in lawyer fee for the change?

hga2• 17 years ago

How much depends on where you are and if the incorporation is out of state, i.e. in Delaware.

However, why would you need a c-corp to accept investment? An LLC provides a lot more flexibility and you'd just have to redo you Operating Agreement.

That flexibility comes at a price, an investor can and likely will insist on modifications that provide him greater protections/rights/whatever that he would have been able to get with an investment in a c-corp. I've worked for one promising company who's life was cut short when its devil investors abused various provisions they had put in the Operating Agreement to gain complete control (all of nothing, we all resigned, but they didn't seem to mind).

zaidf• 17 years ago

It would be in Delaware.

Investors would almost certainly want vesting terms. I'm not sure that is possible under LLC.

hga2• 17 years ago

It was in Virginia in 1996, or at least the lawyers who drafted it believed so. Then again, no one knows what's in an Operating Agreement and whether it's really valid until and unless you go to court, but I don't see why that couldn't be part of one and have it stand. But it will LLCs where pretty new for most states back in the mid-90s).

I think you need to talk to a lawyer in your state who's familiar with LLCs and out of state c-corps to know what's possible and what it will likely cost (unless you live in Missouri, in which case I can ask my father).

Note also that a less flexible c-corp might turn off savvy investors (the type you want).

Scott_MacGregor• 17 years ago

Probably thousands. Most attorney things seem to always involve thousands. Why not just set it up as a corporation right off the bat. By the way, you will not set up as a C-Corp, only a corporation. The C vs. S thing is a tax treatment under IRS tax law that you can choose once the entity is formed.

Since you might want to raise money, to me it seems like the most intelligent thing to do would be to set up a Delaware corporation and operate as a C-Corp. After that if you decide later that you will NEVER want to raise money then flip it to an LLC on advice from your business tax person.

Ask HN: LLC to c-corp?

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