Once and for all, What Entity and What State is best for incorporating

https://news.ycombinator.com/item?id=39097

by mikesabat • 19 years ago

3 5 19 years ago

news.ycombinator.com

I have gotten so many different answers over the years. For a web startup, in what state is it best to incorporate and what type of corporate filing is best (C, S LLC, LLP).

I have heard Delaware and C Corp, but I wanted to know how YC does it.

epi0Bauqu• 19 years ago

You may have heard different answers because it really depends on the goals & circumstances of the startup. I have a few companies at the moment, and they each are set up differently.

Short answer. If you might eventually want outside investment or to go public or to have a lot of employees with stock options, you should be a corporation, though you can elect to be an S corp at first (as opposed to a C corp). If you never plan on doing any of this, you might want to be an LLC because it is easier to deal with. If you are only going to be in one state, it is easiest to just create the legal entity there.

nostrademons• 19 years ago

Our lawyer recommended a Delaware S-corp, given that our idea is fairly pie-in-the-sky at the moment, and is setting us up as one.

One thing I didn't realize when researching these corp types: an S-corp converts to a C-corp automatically as soon as they take outside investment (outside investment = preferred shares. In theory, they can issue common and keep their S-election). There's no additional legal paperwork required, and no complicated reincorporation. That makes S-corps fairly attractive to businesses that might want to take outside investment if they take off, but have no idea if they're going to take off.

extantproject• 19 years ago

Yes, and an LLC doesn't make the possibility of outside investment easy. The S-Corp is basically a bare-bones C-Corp that can "grow up" whenever you need it to.

jl• 19 years ago

The paperwork that YC uses is for a Delaware C Corp.

mikesabat• 19 years ago

Thanks everyone.

Once and for all, What Entity and What State is best for incorporating

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