Re:Why your startup should be a Delaware C-Corp, not an LLC
by pdshrader on Wednesday March 15, 2017 @02:32PM
(#13878550)
Startup/Venture Capital lawyer here (but not your lawyer). Agreed with chimeracoder below. As for cost, a few grand is a good minimum estimate, but it really depends on the complexity. If you've been around as an LLC for a while, you may have different types of equity that has been issued (e.g. profits interests), which will complicate the conversion process a bit. Your lawyer will also have to review the LLC's operating agreement to make sure there aren't any funky protective provisions or oddities that will complicate the conversion. Unlike most Delaware C-corp charters in the startup world, LLC operating agreements are extraordinarily flexible and variable documents, so it's a custom review almost every time we have to go through one of these conversions.
Re:Why your startup should be a Delaware C-Corp, not an LLC
by chimeracoder on Wednesday March 15, 2017 @01:33PM
(#13878009)
> Is it true that you may enter the funding cycle as an LLC but that as a practicality you won't exit funding as anything but a C, that angels and VCs will insist on this restructuring? I think the answer is yes but I don't know.
There's never any hard-and-fast rule in the startup world, but pretty much any VC will want you to be a C-corp instead of an LLC.
(You're unlikely to get refused funding just because your company is an LLC, but they'll likely want you to restructure before the deal finalizes).
Can someone price the cost of converting a Delaware LLC to the C structure that VCs will expect? I think (again, I don't know) that we're talking about a couple of grand of post-money lawyer time.
Early stage startup founders have a lot on their plates. Getting this nuance right to save a few bucks will cost some upfront neurons and some time for something which is ultimately procedural. The OP suggests that we mentally work through this ahead of time and I see the point. But it's like priced equity vs SAFE. It requires a lot of upfront neuron work.
The LLC vs C tax issue seems to be a bit of a canard. You most likely won't have any profits to tax this early and you won't exit funding as an LLC.
Anyways, as the Zuckerberg Florida LLC example shows, you can get these things slightly wrong and still move forward. Getting something infinitely right will guarantee that you will never move forward.