5 ms·

No offense but outside of our little HN/YC bubble I think it's the other way around. LLCs seem far more common than Delaware based C Corps for tech companies. F

No offense but outside of our little HN/YC bubble I think it's the other way around. LLCs seem far more common than Delaware based C Corps for tech companies. For tech startups looking to raise venture capital (a subset of tech companies) a Delaware C Corp is far more common though.

valuearb 10y ago
Aren't LLC's problematic for offering employee equity options? I've done lots of startups, and you want a structure that makes it easy to put together employee pools, easy to raise funding with, and easy to sell/merge. LLCs are easy to setup, but if they create lots of problems down the road it's not a structure you want.
- brianwawok 10y ago
  LLCs are a swim army knife. You can basically do anything, with way less rules and fees. LLCs can totally offer equity. LLC's are easier to sell than a C corp. Plenty of pluses. If you don't want to get VC funded, you should default to LLC.
  - valuearb 10y ago
    Of course LLCs can offer employees equity. But it's not simple, and it's not easy. And its not just VC funding, you should be wary of LLCs if you think it's likely you will need any kind of investors, as typically investors prefer not want to deal with partnership K1s. If your startup is intended to be profitable quickly, and plans to distribute those profits to the founders, an LLC offers significant tax advantages. If you want to build a big business, it can offer some significant limitations.
    - brianwawok 10y ago
      > And its not just VC funding Sure, I do not know many people getting non-VC funding, but I guess if that exists for you, you can consider it.. > If you want to build a big business, it can offer some significant limitations. Not sure that is really true. There are some HUGE LLCs. Say, Koch or Cargil. https://www.forbes.com/largest-private-companies/list/ https://www.forbes.com/largest-private-companies/list/
      - valuearb 10y ago
        Again, LLC is a great fit if you have a profitable business and want profits can be paid as tax efficiently as possible to you and your other founders. You'll never need investors, you'll be able to borrow money because of your great cash flows, etc. And once in a while one grows to the moon while staying private and never go public. But for most startups, you can't know if you'll need to raise funding. And funding isn't just VCs. It's angels. It's friends and family. It's even crowd-funding now that you can crowdfund equity. And maybe you even get the opportunity to go public and want to be the most public market friendly cap structure. I have a friend whose e-commerce startup just broke over $100k per month in revenue. He's an LLC, but he's starting to realize that he doesn't have enough positive cash flow to pay for the equipment needed to lower his product costs, so now he's thinking of finding investors. And he needs a simple, easy to create equity program with vesting for key employees. And since he has no plans to be profitable soon, he's moving to a C corp. A C-Corp is $500. It's not expensive and is the most flexible foundation to build a startup business on. I'm also biased against LLCs because a problem endemic with LLCs which isn't necessary a fault of LLCs is that it's so easy to just start and go. I see founders who never consider vesting as a requirement. Four founders start an LLC and agree to each getting 25% equity split. Then one quits after a month and the remaining three have a big liability issue if they try to squeeze the quitter out. A C corp usually leads to a professional cap structure where founders are forced to think through these issues a little better.
  - zaroth 10y ago
    The biggest problems I've seen for a startup going the LLCs route is negative tax consequences of reinvesting profits, and missing out on the first $10 million of Federal tax-free capital gains. The fact that LLCs are indeed a 'swiss army knife' IMO also works against them. The LLC agreements tend to be bespoke documents which are far too "crafty" for my liking. I like straightforward cap tables with clearly defined rights and preferences and ISO options, whereas LLCs tend to reinvent the wheel and end up with opaque capital structures which require costly legal work to implement.
nodesocket 10y ago
I have a California LLC (sole prop) which is a disregarded entity for tax purposes. LLC is perfect if: a) you don't plan on raising investor capital b) are a single founder, who just wants liability and corporate benefits and protections c) want to easily pass money from the business to personal Do be aware there is a flat $800 a year California LLC fee even if you don't make a cent (which is unfair and anti-small business), but is what it is.
- enraged_camel 10y ago
  FYI the $800 fee is forfeited during the LLC's first year of operation. BUT it's based on calendar year IIRC, so if you're penny-pinching, it may be worth waiting until January to file the paperwork. That way you get all 12 months' worth!
fiatjaf 10y ago
So it seems Stripe Atlas was set with highly-funded startups in mind. Exactly the kind of startup that is not actually in need of Stripe Atlas.

valuearb 10y ago

Aren't LLC's problematic for offering employee equity options? I've done lots of startups, and you want a structure that makes it easy to put together employee pools, easy to raise funding with, and easy to sell/merge. LLCs are easy to setup, but if they create lots of problems down the road it's not a structure you want.

brianwawok 10y ago
LLCs are a swim army knife. You can basically do anything, with way less rules and fees. LLCs can totally offer equity. LLC's are easier to sell than a C corp. Plenty of pluses. If you don't want to get VC funded, you should default to LLC.
- valuearb 10y ago
  Of course LLCs can offer employees equity. But it's not simple, and it's not easy. And its not just VC funding, you should be wary of LLCs if you think it's likely you will need any kind of investors, as typically investors prefer not want to deal with partnership K1s. If your startup is intended to be profitable quickly, and plans to distribute those profits to the founders, an LLC offers significant tax advantages. If you want to build a big business, it can offer some significant limitations.
  - brianwawok 10y ago
    > And its not just VC funding Sure, I do not know many people getting non-VC funding, but I guess if that exists for you, you can consider it.. > If you want to build a big business, it can offer some significant limitations. Not sure that is really true. There are some HUGE LLCs. Say, Koch or Cargil. https://www.forbes.com/largest-private-companies/list/ https://www.forbes.com/largest-private-companies/list/
    - valuearb 10y ago
      Again, LLC is a great fit if you have a profitable business and want profits can be paid as tax efficiently as possible to you and your other founders. You'll never need investors, you'll be able to borrow money because of your great cash flows, etc. And once in a while one grows to the moon while staying private and never go public. But for most startups, you can't know if you'll need to raise funding. And funding isn't just VCs. It's angels. It's friends and family. It's even crowd-funding now that you can crowdfund equity. And maybe you even get the opportunity to go public and want to be the most public market friendly cap structure. I have a friend whose e-commerce startup just broke over $100k per month in revenue. He's an LLC, but he's starting to realize that he doesn't have enough positive cash flow to pay for the equipment needed to lower his product costs, so now he's thinking of finding investors. And he needs a simple, easy to create equity program with vesting for key employees. And since he has no plans to be profitable soon, he's moving to a C corp. A C-Corp is $500. It's not expensive and is the most flexible foundation to build a startup business on. I'm also biased against LLCs because a problem endemic with LLCs which isn't necessary a fault of LLCs is that it's so easy to just start and go. I see founders who never consider vesting as a requirement. Four founders start an LLC and agree to each getting 25% equity split. Then one quits after a month and the remaining three have a big liability issue if they try to squeeze the quitter out. A C corp usually leads to a professional cap structure where founders are forced to think through these issues a little better.
- zaroth 10y ago
  The biggest problems I've seen for a startup going the LLCs route is negative tax consequences of reinvesting profits, and missing out on the first $10 million of Federal tax-free capital gains. The fact that LLCs are indeed a 'swiss army knife' IMO also works against them. The LLC agreements tend to be bespoke documents which are far too "crafty" for my liking. I like straightforward cap tables with clearly defined rights and preferences and ISO options, whereas LLCs tend to reinvent the wheel and end up with opaque capital structures which require costly legal work to implement.

nodesocket 10y ago

I have a California LLC (sole prop) which is a disregarded entity for tax purposes. LLC is perfect if: a) you don't plan on raising investor capital b) are a single founder, who just wants liability and corporate benefits and protections c) want to easily pass money from the business to personal Do be aware there is a flat $800 a year California LLC fee even if you don't make a cent (which is unfair and anti-small business), but is what it is.

enraged_camel 10y ago
FYI the $800 fee is forfeited during the LLC's first year of operation. BUT it's based on calendar year IIRC, so if you're penny-pinching, it may be worth waiting until January to file the paperwork. That way you get all 12 months' worth!

fiatjaf 10y ago

So it seems Stripe Atlas was set with highly-funded startups in mind. Exactly the kind of startup that is not actually in need of Stripe Atlas.