We get this question often from startups that visit our site (). Although an attorney would provide you with the best advice, here are some general thoughts regarding limited liability companies (LLCs):
- It’s easy and affordable to create an LLC – the real work comes before and after the actual incorporation papers are filed.
- Don’t neglect your operating agreement. It goes hand in hand with the incorporation filing because it lays out the framework of how your business will operate. You will need to touch on things such as roles/responsibilities, ownership percentages, and decision procedures. If you want to read more on an operating agreement check out a past answer that I wrote on the topic:
- An LLC is probably not a good idea if you’re planning on seeking funding from venture capitalists (VCs). This is for a bunch of reasons, a few being: 1) an LLC is a pass-through tax entity which VCs hate and 2) LLCs don’t allow for stock option plans, convertible notes. While we’re on the topic, LLCs are tough and expensive to convert to C-Corps down the road so be careful if that’s your plan.
- You won’t have to deal with all the annoying formalities that come with being an S-Corp or C-Corp. However, depending on what state you incorporate in, you may have to comply with some formalities. They may include holding regular board meetings, where you might be obligated to properly adopt resolutions, record minutes, and keep a minutes book.
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