7 ms·

This is cool, but they should not offer a C corp as the default choice. An LLC should be the default for the vast majority of entrepreneurs. The only reason VC-

This is cool, but they should not offer a C corp as the default choice. An LLC should be the default for the vast majority of entrepreneurs. The only reason VC-funded companies are C corps is becaused VC LPs don't want to be hit with taxable income (which would flow through the VC to them). An LLC is much better for a variety of reasons: - Flow through taxation = you only get taxed once. With a C corp you pay corporate income tax and then you get taxed on any distribution - If you sell the business, you better hope you have enough leverage to get a stock sale and not an asset sale, because in an asset sale, you're again getting majorly double taxed. The vast majority of exits are asset sales though because they shield the purchaser from unknown liabilities - From an LLC, you can easily become a C corp. From a C corp, it's majorly difficult (practically infeasible) to become an LLC; you retain optionality in one case but not the other

rpedela 11y ago
You must be a C Corp to accept VC investment. It is expensive and time consuming to go from LLC to C Corp. Maybe you mean S Corp which has some similarities with LLC but it is easy to switch to C Corp if you need to. I generally agree they should not offer C Corp though because the paperwork is extremely complicated and cannot be done correctly by an internet form at least in my experience. EDIT: I should have said very unlikely to raise VC investment even though it is technically possible to raise investment with most types of businesses such as LLC. [1] 1. http://www.dividendsandpreferences.com/2009/02/why-dont-venture-capitalists-like.html?m=1 http://www.dividendsandpreferences.com/2009/02/why-dont-vent...
- tvladeck 11y ago
  > You must be a C Corp to accept investment. This is not true. You can sell membership interest in an LLC the same way you can sell stock in a C corp. And in my experience it's fairly simple to go LLC to C. I didn't get confused with S corps.
  - zrail 11y ago
    You as an initial member can sell membership interest, but reselling that interest can be difficult or impossible for a VC. They're looking for future liquidity, and an LLC interest just doesn't have the same statutory guarantees that a C corp share has.
    - jahewson 11y ago
      That's not really true either. If the operating agreement permits reselling then you can resell. A C corp's operating agreement can also restrict selling to the point that it becomes impossible - if that's what's wanted. It's common for investors to want such restrictions because they don't want to find that the other investors in the business have changed without their agreement, or that one of the founders has sold a share to an investor that they don't approve of.
  - api 11y ago
    Will any actual VC firms invest in an LLC? I've never heard of that but then again I've never worked in that world full time.
    - beachstartup 11y ago
      private equity firms will.
    - chris_va 11y ago
      Most just require that you convert from LLC to C-Corp, which isn't impossible.
  - pbreit 11y ago
    Generally true when VC is (potentially) involved.
    - tvladeck 11y ago
      Right - see my first comment. And you can always go from LLC to C if you're taking VC investment. And you should be able to stay as an LLC if VCs would learn to use blocker corps like PE shops do. VCs don't do that but not for any principled reason as far as I can tell.
- randomdrake 11y ago
  This is wrong. You do not have to be a C Corp to accept investments. Not sure where or how this idea got started. There are even advantages to LLCs that some savvy investors prefer as a matter of fact. It more comes down to the source of the actual money in the fund than the fund itself. Also they are quite easy to setup. Requiring a simple Internet form and a few checks written here and there. Additionally it is extremely dependent on the LLC in question as to whether switching will be difficult later on in any way. Sole member LLC with no additional equity holders? You can fill out a form. EDIT: your edit is wrong too. Whether you switch it from "investments" to "VC investments" or provide a source to attempt to backup your falsehoods. > EDIT: I should have said very unlikely to raise VC investment even though it is technically possible to raise investment with most types of businesses such as LLC. [1] We should be careful in how we continue to spread this common misinformation. It is not helping people who are actually new to this and trying to learn. The likelihood of landing VC investment has little to nothing to do with you being an LLC or not. VC attorneys convert LLCs in their sleep. If they want to invest in only C Corps and you're an LLC, between your legal and their legal: it'll get worked out.
  - rpedela 11y ago
    > Whether you switch it from "investments" to "VC investments" Lol! I noticed I made a typo (missing VC) within one minute of submitting and fixed it. Wow you are fast.
    - randomdrake 11y ago
      You can laugh all you want but this is a pretty serious topic that most founders get completely wrong. I am a bit adamant about the correctness of this because I've had to repeat the advice and information to a lot of people. For some reason you, and a lot of other folks, have gotten ideas in your head like: - an LLC is somehow a lesser entity than a C Corp - you can't raise money with an LLC - you're not as well protected with an LLC These are all completely false in a lot of very important ways that can make differences that have many commas when it comes time for liquidity events or payouts of any sort.
- deleted 11y ago
  [deleted]
zrail 11y ago
I 100% agree with you on principal, but the initial purpose of this seems to be specifically to set up companies within accelerators, which are all going to be Delaware C corps so the VCs will invest in them (as you say). An LLC can elect to be taxed as a C corp, but that's not the same thing from an investor point of view. An LLC taxed as a C corp still has interests instead of shares and still has use an Operating Agreement under the relevant state LLC act. Changing entity types isn't especially hard, but it's tedious. Usually you do some sort of subsidiary merger maneuver.
- IncRnd 11y ago
  There are also tax consequences for switching corporate structure. The laws may have changed from when we did a few switches between LLC, S, and C, but those were far from only tedious. There was a lot of money we suddenly became liable in taxes.
cynical_sheet 11y ago
You are right and it's also much cheaper to form and maintain an LLC. I think that forming an LLC in Colorado is the cheapest option ~ $250 total costs. That is great if you're just bootstraping and don't know if the business is going to be successful. BTW, if you're not a US citizen + the business is providing services + you're the only owner (single member LLC), then there are NO TAX-paying requirements. Also, the business might not succeed, so why waste all that time+money on creating a C Corp, which is even more expensive to dissolve? C Corps also have many more expensive legal requirements. If the business is successful and you plan on getting VC money, convert it later to a C Corp.
- kels 11y ago
  I'm in Colorado and it costs only $50 to file for an LLC online. Where is it costing you $250?
  - deleted 11y ago
    [deleted]
  - cynical_sheet 11y ago
    - State filing fees = $50 - Processing fees(paying someone to file for you, obtain EIN etc.) = $50 - Registered agent service = $100/year - EIN for foreigners = $50
    - kels 11y ago
      Got it. I wasn't thinking for someone outside the state or country.
    - lstamour 11y ago
      EIN is free, obtained by phone if a foreign individual is setting up the company, or if you've already called, it appears you can use the website to set up an EIN for a local company so long as it's a subsidiary (even international) of a company with an existing EIN. Theoretically slashes $100 off the cost. ;-) Registered agent... that's a tricky one. I saw this advice on Reddit: "Lots of small business law firms will serve as registered agents for free. Really the only purpose of the RA is to accept service if you get sued, and they figure you're most likely to hire the firm that's already looking at the complaint and forwarding it on to you." Also some registered agents are national, e.g. Harbour Compliance, just one I found on Google. Here are others: http://registered-agents.credio.com/ http://registered-agents.credio.com/ (hmm, this website is less useful than I expected, remember to check off "All 50 states" or you'll be missing some...)
michaelschade 11y ago
Thanks for the feedback! We agree that C Corps may not be for every company: we're looking at support for other company structures, including LLCs (https://stripe.com/atlas/faq#Can-Stripe-help-me-set-up-a-different-company-structure https://stripe.com/atlas/faq#Can-Stripe-help-me-set-up-a-dif...). To kick off the beta, we found that the C Corp was the best place to start based on what entrepreneurs in emerging markets were already looking to do. We go into much more detail about C Corps and their tradeoffs when we invite someone to the beta. In addition to other company structures (like LLCs) here in the US, we're also looking at equivalent structures as we expand Atlas globally.
- itsthisjustin 11y ago
  For tax purposes it would be best to request to be taxed as an S-Corp. You can then incorporate as an LLC or a corporation.
  - taf2 11y ago
    This usually assumes a larger net income for the business - I believe when you are just starting out LLC makes the most sense then you can transits ion to S-Corp once renvues hit a few million
    - tdfx 11y ago
      You can incorporate as an LLC and elect to be taxed as an S-Corp.
      - karmelapple 11y ago
        One important point when doing this: you must do payroll. Depending on if you have no money coming in, or a small amount of money, it may not be worth it to do payroll... but that's only for the smallest of businesses.
  - yinghang 11y ago
    Founders/owners of a S-Corp have to be Americans.
deleted 11y ago
[deleted]
deelowe 11y ago
Agreed. Most small businesses start as LLCs (outside of the valley).
ripberge 11y ago
Not so fast. These are getting formed in Delaware, but I believe if you operate in another state you have to register and may be subject to their taxes. In California there is a "gross receipts tax" based on revenue for an LLC. Do over a million dollars? Pay $6,000 in LLC Fees. Fine for a software co or a law firm not a huge deal. Ecommerce can be a crazy low margin business though and many Stripe customers could get hurt. http://www.sandiegobusinesslawyerblog.com/2013/05/californias-gross-receipts-tax.html http://www.sandiegobusinesslawyerblog.com/2013/05/california...
- rsync 11y ago
  "These are getting formed in Delaware, but I believe if you operate in another state you have to register and may be subject to their taxes." I think the Delaware corp is a fine idea and a good choice here, but combining that with a Silicon Valley Bank bank account gives me pause ... California really goes after state tax revenue, and I worry that a corporate entity that has no presence in California, and is not a CA corp has created an opening with a SVB bank account to allow CA FTB right in ... and they are aggressive. I would feel more comfortable if the bank account was also in Delaware...
  - shimon 11y ago
    While I agree that there are many confusing jurisdictional pitfalls in incorporation and banking, this isn't one of them. SVB in particular has customers all over the nation and it is ludicrous to suggest that a state's tax authorities would go after customers of banks based in their state as if they had jurisdiction over those customers' business conducted outside the state. Law is a messy business, but they have literally taken the most typical arrangement for startups in US accelerator programs as the first template for Stripe Atlas. I can't imagine a safer set of choices.
arasmussen 11y ago
Double taxation for C corps is on dividends but not salary so this isn't really as big a deal as you'd think.
- winter_blue 11y ago
  Can you vary your salary according to revenue, so that your salary always == revenue? (Thus completely avoid corporate taxes by never paying dividends, and nominally having zero profit.)
  - chris_va 11y ago
    http://www.bloomberg.com/bw/stories/2007-07-16/how-much-to-pay-yourselfbusinessweek-business-news-stock-market-and-financial-advice http://www.bloomberg.com/bw/stories/2007-07-16/how-much-to-p...
deleted 11y ago
[deleted]
artur_makly 11y ago
+100000 for LLCs

rpedela 11y ago

You must be a C Corp to accept VC investment. It is expensive and time consuming to go from LLC to C Corp. Maybe you mean S Corp which has some similarities with LLC but it is easy to switch to C Corp if you need to. I generally agree they should not offer C Corp though because the paperwork is extremely complicated and cannot be done correctly by an internet form at least in my experience. EDIT: I should have said very unlikely to raise VC investment even though it is technically possible to raise investment with most types of businesses such as LLC. [1] 1. http://www.dividendsandpreferences.com/2009/02/why-dont-venture-capitalists-like.html?m=1 http://www.dividendsandpreferences.com/2009/02/why-dont-vent...

tvladeck 11y ago
> You must be a C Corp to accept investment. This is not true. You can sell membership interest in an LLC the same way you can sell stock in a C corp. And in my experience it's fairly simple to go LLC to C. I didn't get confused with S corps.
- zrail 11y ago
  You as an initial member can sell membership interest, but reselling that interest can be difficult or impossible for a VC. They're looking for future liquidity, and an LLC interest just doesn't have the same statutory guarantees that a C corp share has.
  - jahewson 11y ago
    That's not really true either. If the operating agreement permits reselling then you can resell. A C corp's operating agreement can also restrict selling to the point that it becomes impossible - if that's what's wanted. It's common for investors to want such restrictions because they don't want to find that the other investors in the business have changed without their agreement, or that one of the founders has sold a share to an investor that they don't approve of.
- api 11y ago
  Will any actual VC firms invest in an LLC? I've never heard of that but then again I've never worked in that world full time.
  - beachstartup 11y ago
    private equity firms will.
  - chris_va 11y ago
    Most just require that you convert from LLC to C-Corp, which isn't impossible.
- pbreit 11y ago
  Generally true when VC is (potentially) involved.
  - tvladeck 11y ago
    Right - see my first comment. And you can always go from LLC to C if you're taking VC investment. And you should be able to stay as an LLC if VCs would learn to use blocker corps like PE shops do. VCs don't do that but not for any principled reason as far as I can tell.
randomdrake 11y ago
This is wrong. You do not have to be a C Corp to accept investments. Not sure where or how this idea got started. There are even advantages to LLCs that some savvy investors prefer as a matter of fact. It more comes down to the source of the actual money in the fund than the fund itself. Also they are quite easy to setup. Requiring a simple Internet form and a few checks written here and there. Additionally it is extremely dependent on the LLC in question as to whether switching will be difficult later on in any way. Sole member LLC with no additional equity holders? You can fill out a form. EDIT: your edit is wrong too. Whether you switch it from "investments" to "VC investments" or provide a source to attempt to backup your falsehoods. > EDIT: I should have said very unlikely to raise VC investment even though it is technically possible to raise investment with most types of businesses such as LLC. [1] We should be careful in how we continue to spread this common misinformation. It is not helping people who are actually new to this and trying to learn. The likelihood of landing VC investment has little to nothing to do with you being an LLC or not. VC attorneys convert LLCs in their sleep. If they want to invest in only C Corps and you're an LLC, between your legal and their legal: it'll get worked out.
- rpedela 11y ago
  > Whether you switch it from "investments" to "VC investments" Lol! I noticed I made a typo (missing VC) within one minute of submitting and fixed it. Wow you are fast.
  - randomdrake 11y ago
    You can laugh all you want but this is a pretty serious topic that most founders get completely wrong. I am a bit adamant about the correctness of this because I've had to repeat the advice and information to a lot of people. For some reason you, and a lot of other folks, have gotten ideas in your head like: - an LLC is somehow a lesser entity than a C Corp - you can't raise money with an LLC - you're not as well protected with an LLC These are all completely false in a lot of very important ways that can make differences that have many commas when it comes time for liquidity events or payouts of any sort.
deleted 11y ago
[deleted]

zrail 11y ago

I 100% agree with you on principal, but the initial purpose of this seems to be specifically to set up companies within accelerators, which are all going to be Delaware C corps so the VCs will invest in them (as you say). An LLC can elect to be taxed as a C corp, but that's not the same thing from an investor point of view. An LLC taxed as a C corp still has interests instead of shares and still has use an Operating Agreement under the relevant state LLC act. Changing entity types isn't especially hard, but it's tedious. Usually you do some sort of subsidiary merger maneuver.

IncRnd 11y ago
There are also tax consequences for switching corporate structure. The laws may have changed from when we did a few switches between LLC, S, and C, but those were far from only tedious. There was a lot of money we suddenly became liable in taxes.

cynical_sheet 11y ago

You are right and it's also much cheaper to form and maintain an LLC. I think that forming an LLC in Colorado is the cheapest option ~ $250 total costs. That is great if you're just bootstraping and don't know if the business is going to be successful. BTW, if you're not a US citizen + the business is providing services + you're the only owner (single member LLC), then there are NO TAX-paying requirements. Also, the business might not succeed, so why waste all that time+money on creating a C Corp, which is even more expensive to dissolve? C Corps also have many more expensive legal requirements. If the business is successful and you plan on getting VC money, convert it later to a C Corp.

kels 11y ago
I'm in Colorado and it costs only $50 to file for an LLC online. Where is it costing you $250?
- deleted 11y ago
  [deleted]
- cynical_sheet 11y ago
  - State filing fees = $50 - Processing fees(paying someone to file for you, obtain EIN etc.) = $50 - Registered agent service = $100/year - EIN for foreigners = $50
  - kels 11y ago
    Got it. I wasn't thinking for someone outside the state or country.
  - lstamour 11y ago
    EIN is free, obtained by phone if a foreign individual is setting up the company, or if you've already called, it appears you can use the website to set up an EIN for a local company so long as it's a subsidiary (even international) of a company with an existing EIN. Theoretically slashes $100 off the cost. ;-) Registered agent... that's a tricky one. I saw this advice on Reddit: "Lots of small business law firms will serve as registered agents for free. Really the only purpose of the RA is to accept service if you get sued, and they figure you're most likely to hire the firm that's already looking at the complaint and forwarding it on to you." Also some registered agents are national, e.g. Harbour Compliance, just one I found on Google. Here are others: http://registered-agents.credio.com/ http://registered-agents.credio.com/ (hmm, this website is less useful than I expected, remember to check off "All 50 states" or you'll be missing some...)

michaelschade 11y ago

Thanks for the feedback! We agree that C Corps may not be for every company: we're looking at support for other company structures, including LLCs (https://stripe.com/atlas/faq#Can-Stripe-help-me-set-up-a-different-company-structure https://stripe.com/atlas/faq#Can-Stripe-help-me-set-up-a-dif...). To kick off the beta, we found that the C Corp was the best place to start based on what entrepreneurs in emerging markets were already looking to do. We go into much more detail about C Corps and their tradeoffs when we invite someone to the beta. In addition to other company structures (like LLCs) here in the US, we're also looking at equivalent structures as we expand Atlas globally.

itsthisjustin 11y ago
For tax purposes it would be best to request to be taxed as an S-Corp. You can then incorporate as an LLC or a corporation.
- taf2 11y ago
  This usually assumes a larger net income for the business - I believe when you are just starting out LLC makes the most sense then you can transits ion to S-Corp once renvues hit a few million
  - tdfx 11y ago
    You can incorporate as an LLC and elect to be taxed as an S-Corp.
    - karmelapple 11y ago
      One important point when doing this: you must do payroll. Depending on if you have no money coming in, or a small amount of money, it may not be worth it to do payroll... but that's only for the smallest of businesses.
- yinghang 11y ago
  Founders/owners of a S-Corp have to be Americans.

deleted 11y ago

[deleted]

deelowe 11y ago

Agreed. Most small businesses start as LLCs (outside of the valley).

ripberge 11y ago

Not so fast. These are getting formed in Delaware, but I believe if you operate in another state you have to register and may be subject to their taxes. In California there is a "gross receipts tax" based on revenue for an LLC. Do over a million dollars? Pay $6,000 in LLC Fees. Fine for a software co or a law firm not a huge deal. Ecommerce can be a crazy low margin business though and many Stripe customers could get hurt. http://www.sandiegobusinesslawyerblog.com/2013/05/californias-gross-receipts-tax.html http://www.sandiegobusinesslawyerblog.com/2013/05/california...

rsync 11y ago
"These are getting formed in Delaware, but I believe if you operate in another state you have to register and may be subject to their taxes." I think the Delaware corp is a fine idea and a good choice here, but combining that with a Silicon Valley Bank bank account gives me pause ... California really goes after state tax revenue, and I worry that a corporate entity that has no presence in California, and is not a CA corp has created an opening with a SVB bank account to allow CA FTB right in ... and they are aggressive. I would feel more comfortable if the bank account was also in Delaware...
- shimon 11y ago
  While I agree that there are many confusing jurisdictional pitfalls in incorporation and banking, this isn't one of them. SVB in particular has customers all over the nation and it is ludicrous to suggest that a state's tax authorities would go after customers of banks based in their state as if they had jurisdiction over those customers' business conducted outside the state. Law is a messy business, but they have literally taken the most typical arrangement for startups in US accelerator programs as the first template for Stripe Atlas. I can't imagine a safer set of choices.

arasmussen 11y ago

Double taxation for C corps is on dividends but not salary so this isn't really as big a deal as you'd think.

winter_blue 11y ago
Can you vary your salary according to revenue, so that your salary always == revenue? (Thus completely avoid corporate taxes by never paying dividends, and nominally having zero profit.)
- chris_va 11y ago
  http://www.bloomberg.com/bw/stories/2007-07-16/how-much-to-pay-yourselfbusinessweek-business-news-stock-market-and-financial-advice http://www.bloomberg.com/bw/stories/2007-07-16/how-much-to-p...

deleted 11y ago

[deleted]

artur_makly 11y ago

+100000 for LLCs