Comment by hooande | Hacker News Reader

Comment by hooande | Hacker News Reader

Parent Full thread

I've heard that most Y Combinator startups are set up as Delaware C-Corps because most investors prefer to work with Delaware C-Corps. Being in Delaware provides them with more legal protection as investors and the C structure gives them more control. Some VCs will ask founders to restructure as C-Corps as a condition of investment, so pg recommends that Y Combinator startups just start out as C-Corps from the start (anticipating further investment).

If you're looking for VC money or major investment, it's probably a good idea. If you're going to try to be self sustaining for several months/years then an LLC might not be the worst thing (or you'll have to pay taxes twice, once for the business and once for yourself)

I think it's corporations that have to pay tax twice, not LLC's... Or maybe I'm reading what you wrote wrong? But seriously, llc's are much easier than s or c corporations to manage, and frankly your chance of hitting the IPO lottery are pretty bad, statistically. You'll save time and money on the llc and as long as you manage things properly a decent lawyer ought to be able to switch you to c or s corp status should you hit the big time.

One other problem with a Delaware corporation, specifically, is that if you're in California, you may be subject to their tax in addition to Delaware.

Also, one other point. Investors love Delaware corporations because they know them and also because they tend to be favorable to the investor. You probably want to read that last sentence again. Also I watched a presentation by some lawyers from Reed Smith who argued That California may actually be preferable to non-investors.

But the best piece of advice I can give you is to pick one and go forward quickly without dwelling too much.

fred

I think you were both saying the same thing. C-corp is taxed on its profits, and then employees are taxed on their wages. S-Corps and LLCs are pass-through entities where the profits are "passed along" to the individual owners, so you only pay once. Obviously, there are some benefits with a pass-through entity but also some real concerns for outside investors.

Reply on news.ycombinator.com