4 ms·

Creating a Startup - Choosing a Company Type

11 points by maccman 17y ago

tptacek 17y ago
Isn't this basically a rehash of a Feld article, down to the "check box on the IRS form" and the "frowned upon" UBTI tax? Does it actually matter what company structure you have when you go look for funding? I don't think it does. Everyone I've ever talked to on this subject says "whatever you do, they're just going to re-do it anyways."
- bravura 17y ago
  Yes, it is a rehash of the Feld article. The author clearly doesn't understand the nuances of the issues, and it just repeating someone else. This is evidenced by: "Incorporating a LLC". You can't incorporate an LLC, you form an LLC. An LLC isn't a corporation.
dennykmiu 17y ago
For a bootstrapping entrepreneur, LLC is clearly the way to go. If and when you do receive VC funding (which is difficult if not impossible to do these day), you can do a tax-free transfer from a LLC to a C-Corp. In the meantime, it allows you maximum flexibility. The only big concern with LLC is that any income is taxed as personal income (not investment income) and therefore you would need to pay payroll tax (about 15%, before Federal and State tax). Also, the annual franchise fee is calculated based on "gross" income and not "net". This is an important subject. For those of us who are interested, I have written more on that in the following. http://www.startupforless.org http://www.startupforless.org
- tptacek 17y ago
  With an S-Corp, you can pay yourself a "reasonable salary" subject to payroll tax, and then pay distributions to yourself over and above that. I've been told this is an audit flag, and it doesn't seem worth it for the minor gain. There are also complexities to issuing equity from an LLC.
  - dennykmiu 17y ago
    I agree. I have written about my own experience which is for an LLC to elect to file tax as a S-Corp (filing a Form 2553). It is the best of both Worlds.
    - bravura 17y ago
      Where did you write this up? I would like to read about it.
    - dennykmiu 17y ago
      http://www.lovemytool.com/blog/2008/01/bootstrapping.html http://www.lovemytool.com/blog/2008/01/bootstrapping.html 2nd part of the long article. Thanks, @bravura.
- andrewljohnson 17y ago
  When I started my start-up, I set it up as a c-corp. A lawyer agreed to work with us on a deferred fees basis. A friend of mine did the same thing, different lawyer. Boot-strapping start-ups should look for this kind of opportunity. Not only do you look rosier to VCs, and avoid any need for payroll - you also get legal and tax advice early on, which is very valuable.

11 points by maccman 17y ago

Isn't this basically a rehash of a Feld article, down to the "check box on the IRS form" and the "frowned upon" UBTI tax? Does it actually matter what company structure you have when you go look for funding? I don't think it does. Everyone I've ever talked to on this subject says "whatever you do, they're just going to re-do it anyways."

bravura 17y ago
Yes, it is a rehash of the Feld article. The author clearly doesn't understand the nuances of the issues, and it just repeating someone else. This is evidenced by: "Incorporating a LLC". You can't incorporate an LLC, you form an LLC. An LLC isn't a corporation.

dennykmiu 17y ago

For a bootstrapping entrepreneur, LLC is clearly the way to go. If and when you do receive VC funding (which is difficult if not impossible to do these day), you can do a tax-free transfer from a LLC to a C-Corp. In the meantime, it allows you maximum flexibility. The only big concern with LLC is that any income is taxed as personal income (not investment income) and therefore you would need to pay payroll tax (about 15%, before Federal and State tax). Also, the annual franchise fee is calculated based on "gross" income and not "net". This is an important subject. For those of us who are interested, I have written more on that in the following. http://www.startupforless.org http://www.startupforless.org

tptacek 17y ago
With an S-Corp, you can pay yourself a "reasonable salary" subject to payroll tax, and then pay distributions to yourself over and above that. I've been told this is an audit flag, and it doesn't seem worth it for the minor gain. There are also complexities to issuing equity from an LLC.
- dennykmiu 17y ago
  I agree. I have written about my own experience which is for an LLC to elect to file tax as a S-Corp (filing a Form 2553). It is the best of both Worlds.
  - bravura 17y ago
    Where did you write this up? I would like to read about it.
  - dennykmiu 17y ago
    http://www.lovemytool.com/blog/2008/01/bootstrapping.html http://www.lovemytool.com/blog/2008/01/bootstrapping.html 2nd part of the long article. Thanks, @bravura.
andrewljohnson 17y ago
When I started my start-up, I set it up as a c-corp. A lawyer agreed to work with us on a deferred fees basis. A friend of mine did the same thing, different lawyer. Boot-strapping start-ups should look for this kind of opportunity. Not only do you look rosier to VCs, and avoid any need for payroll - you also get legal and tax advice early on, which is very valuable.