Does YC not like c-corps?

https://news.ycombinator.com/item?id=4395091

by Ian_Kung • 14 years ago

1 4 14 years ago

news.ycombinator.com

Hello! My classmates and I have created a product and we're trying to decide whether or not to incorporate. The main reason we're thinking about it is because our site deals with people sharing works that may not necessarily be their own property(for example: a user might post a link to a show he/she likes, but he/she does not own any rights to it). Despite the protection offered by DMCA, we were worried we might face legal issues for unforeseen circumstances and figured we should protect ourselves.

On the other hand, we were possibly interested in taking our idea to YC once it has proven itself, but it appears in the FAQ's that YC would prefer we did not incorporate. Can anyone offer some advice on the matter? Much appreciated!

jamesladd• 14 years ago

I'm thinking that YC don't like incorporated companies where the IP is tied up in the trading company, rather than licensed to the trading company by the IP holding company. I could be wrong.

pg• 14 years ago

If you feel you need to, go ahead; just try and do it properly.

trueneverland• 14 years ago

YC probably prefers they help you with the process vs you doing it yourself. The problem is most people do it incorrectly and shoot themselves in the foot. Not to mention it can be a costly thing to fix. If you must do it, as PG says, do it properly. I recommend finding an attorney who is familiar with startups to do it right. Some attorneys can mess you up to.

tptacek• 14 years ago

Why would you use a C Corporation to solve this problem? You'd probably get very similar protection --- perhaps the same protection --- from an LLC.

Here is roughly the mental model I've built about incorporation choices (there are several lawyers on HN that may stomp on me for posting this):

* LLC - cheapest, all money goes straight to principals as if each was a sole proprietor or freelance, tricky to issue equity to employees

* S-Corp - enables the FICA "reasonable salary" cheat, enables employees to easily get shares, enables principals to get W2 wages instead of paying quarterly on everything (LLC's can get this too if they "file" as S).

* C-Corp - company pays corp taxes, company can have multiple classes of shares.

All of these structures provide people acting on behalf of the company, having disclosed that fact clearly to their counterparties, with a reasonable belief that they are authorized by the company, some measure of protection against contract claims.

It's also very important to remember, if you're incorporating to avoid a foreseeable legal event, that corporate liability protections don't shield you from torts. The DMCA stuff you're talking about is tort law. If you are negligent or deliberately cause damages or commit fraud, the corporation isn't going to protect you. Similarly, some things you'd assume would be a matter of contract law (such as payroll) might not be depending on what state you're in.

If I was in your situation, I wouldn't consider laying out money for a C-Corp, and I'd only do something beyond the barest formality of an LLC if I had more than a couple founders or more than one "kind" of founder.

Does YC not like c-corps?

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