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.
> You can laugh all you want but this is a pretty serious topic that most founders get completely wrong.
I appreciate your passion and agree it is an important topic. I just found that specific sentence funny.
> an LLC is somehow a lesser entity than a C Corp
Personally, I have never thought that. They are just different.
> you're not as well protected with an LLC
I would have agreed with you until recently. I bought a house and the audit for the home loan was extremely thorough. They wanted tax and financial records for all sorts of things that I wouldn't think would be relevant. Since I am self-employed that included my business tax and financial records. I pushed back because I don't think that is any of their business and they relented only because it is a C corp. I have only bought one house and have one loan. I don't know if it is standard practice to audit the business too, but in my case having a C corp saved me from a business audit.
> you can't raise money with an LLC
Technically correct, but I strongly disagree with the blanket advice that first become LLC and then later become C corp if necessary. Likewise I strongly disagree with the blanket advice to just be a C corp.
I always ask people what the ultimate goal is. If the ultimate goal is to become Google, Facebook, etc (forget likelihood), then I say C corp. Otherwise I usually say LLC.
What being a founder really means is your job is to build confidence. Build confidence with employees that you are a good leader and they can depend on a paycheck from you. Build confidence with customers that you can build a good product and you will support them if they have problems. Build confidence with investors that you will make them money.
One way to build confidence with VCs is to have the business set up as a Delaware C Corp. If your goal is to become like Facebook, Google, etc then you will probably need VC money at some point and you will be forced to become a C corp eventually too. Why not just do it at the beginning and show VCs you are serious and have some knowledge about what it takes to become a big, public company. That isn't the only way to build confidence nor is it the best way, but it is a way. Why start with LLC and make it a question you have to constantly answer?
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.