Ask HN: Should Startups Form as an LLC or C-Corp?

https://news.ycombinator.com/item?id=10599002

by lettergram • 11 years ago

4 3 11 years ago

news.ycombinator.com

My "company" (which is currently not legally formed) is ready to begin sales, however I don't know what form of legal entity I should form.

I will eventually need outside investment, and definitely would like some liability protections. This leads me to consider a C-Corp (which would help with outside investment).

However, is it easier to just start with an LLC and just later convert to a C-Corp, or is it easier to start as a C-Corp?

Also, I was considering applying to Y Combinator, so do they have a preference?

staticautomatic• 11 years ago

Having done both, my opinion is that you should incorporate as an LLC. There's little to no regulatory headache compared to a C-Corp and it's much easier to deal with taxes. If you do need to convert to a C-corp in order to take on outside investment, it can be done easily and quickly (although there can be tax repercussions).

yarrowy• 11 years ago

What about in-state vs Delaware LLC? Is it any easier to convert to a Delaware C-Corp if you started as a Delaware LLC?

tylercubell• 11 years ago

If you're starting with the expectation of raising VC, filing in Delaware is a good option. Investors prefer Delaware for its pro-business Chancery court and its established history of corporate law. However, if you're not expecting to raise VC, it's almost always easier to file in your home state. By doing this you can avoid paying foreign corporation fees and filing additional paperwork.

If you need outside investment, forming a C-Corp is the way to go. There is more paperwork involved but it's well-suited for investment. LLCs on the other hand offer more flexibility but are more complicated to invest in.

Delaware has a procedure known as "statutory conversion" for converting an LLC to a C-Corp but there may be tax consequences.

Ask HN: Should Startups Form as an LLC or C-Corp?

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