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Ask HN: Must a company be a Corporation to award equity?
Are the only types of corporate structures that allow equity allocation Corporations? Or would this type of offer work with LLCs?
- davismwfl 8y agoThere are ways of awarding "equity" in LLC's as well, but it works differently than a traditional S or C corp. Even in a S corp you are limited to how many people can have shares before you are forced to convert to a C corp but you are still at least dealing with shares. In an LLC you do not have shares, you generally have "units" which equate similarly but are geared towards "profit interest in the business", which usually ties back to a capital contribution but doesn't necessarily tie to cash. IANAL so you should seek one out if you are trying to do anything along these lines. Anytime you set up a business pay the money for an attorney to go over it so you have the correct information and structure, it is so worth it and doesn't cost that much in the long run. And fixing things later can cost way more. Personally, I always prefer LLC's as I don't seek venture funding for my own companies, and even if you do raise some money from friends/family or high net worth people an LLC is generally fine in these cases. If you plan to raise funds from large Angels or VC's always setup the proper C corp from the beginning and use an attorney that has done it before. If you aren't sure, you can always convert an LLC to a C corp, just tell your attorney that it is possible you will do this. That way they can include the proper language in the operating agreement to make that conversion as tax neutral as possible.
- abbadadda 8y agoThanks for the detailed answer!