Ask HN: S-Corp/C-Corp/LLC

I've got both an LLP and an S-corp.<p>For the income pass-through reasons, you're right that a S-corp or LLP is the way to go. If I recall correctly, the tax difference between the 2 boils down to how much you're going to make - that is if you make over $X per year you want one solution and if you make under $X you want the other. I was in a similar situation, crunched the numbers, and determined that an S-corp was the correct solution for me, but your situation could well be different. I believe an LLC/LLP also dodges the $800 / yr that CA demands of a corp for the privilege of doing business in its state, so that might also factor into your consideration (not so sure about that one though, my LLP isn't in CA).<p>You can always convert to a C-corp later, but it doesn't seem like it makes much sense for you now.

This isn't going to be the answer that you want, but it doesn't matter what corporate form you take. What matters is what you build. LLCs are going to be the least work. You won't sacrifice things down the road - worst case, you and your partners create a new Corp and sell the LLC to that corp.<p>Most likely, you aren't going to attract VC investment (most companies don't). LLCs can grow very large (like Fidelity Investments which has profits of $1B per year). They require little anything to run them.<p>Just make your product. If you're successful, it won't matter. If you're unsuccessful, it won't matter. This is just distracting you from making your product.

Pretty sure you can convert S Corp into C Corp at a later date and declare the multiple classes of stock needed to raise money. I believe if you convert into a C Corp from the S Corp, you have to wait a period of time (5 years?) to convert back into an S corp if you so wished. LLC is a different beast. I've personally never been involved with an LLC.<p>I'm not an attorney or tax guy, just a startup guy.<p>Update: Brad Feld Explains this well/confirms some things. <a href="http://www.feld.com/wp/archives/2006/02/s-corps-vs-llcs.html" rel="nofollow">http://www.feld.com/wp/archives/2006/02/s-corps-vs-llcs.html</a>

I often hear people (including Brad Feld in the relevant article on the front page of HN right now) saying that a corporation is the right choice if you plan on seeking funding, because venture investors don't want the pass through income that an LLC can create. VC's generally don't want to create Unrelated Business Taxable Income for their investors.<p>I don't understand why these VC's don't just create a corporation to buy stock in a LLC's. I know for a fact that at least some venture firms do this (I worked at one that did). A corporation can own stock in an LLC, and corporations (when the elect to be a C-corp, which I assume the VC would do) don't generate pass through income.<p>The only explanation I can think of is perhaps if someone is making small, angel or YC style investments. Then, the administrative cost of setting up and maintaining an additional "blocker" corporation for each investment would be significant in comparison to the total dollars invested.<p>I am very curious to know what the reason that firms that are investing hundreds of thousands if not millions of dollars don't do this.

Ask for referrals and talk to a (good) local lawyer.<p>There are trade-offs. There are options. There are costs. There are details.<p>More importantly, there are various (good) discussions and (key) decisions to be had among all of the (potential) partners (with the assistance of your lawyer), to ensure that all are on-board and in agreement, and that there are agreements around the plans for incorporation and for major state transitions including acquisition and dissolution.<p>Your lawyer is also then a good resource for a quick review of significant contracts; a good lawyer knows what to look for in these agreements.<p>NB: This incorporation topic (LLC versus S-corp versus C-corp, taxes, accounting, and related) seems fodder for inclusion over in the HN Library area.