Free advice for entrepreneurs …

Not legal advice, go speak with a lawyer if you want that. And understand that they have a vested interest in an alternative position to what I say below.

When forming a startup, do not, unless you are a glutton for punishment, use an LLC structure, and run as far away, as rapidly as possible, from people who suggest you should use it.

Lawyers love LLCs as you have to keep coming back to them for any change. LLCs have a few interesting drawbacks. Such as if your startup makes a profit, and you have more than one owner. Then they (LLCs) are very, very bad. Especially on 15-April in the US.

Working on fixing that now for the day job.

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2 thoughts on “Free advice for entrepreneurs …

  1. In regards taxes, how are LLCs significantly different (in your experience) than subchapter-S corporations, especially with multiple owners? In both cases, you need to divvy up the profits in proportion to shareholders…and in regards changes, how are the requirements very different from regular corporations?

    At least LLCs don’t have the documentary burden of regular board meetings that regular c- and s- corporations do. Moreover, state-to-state taxes vary widely on LLCs versus regular corporations as well.

    ($dayjob is an s-corp.)

  2. @Jerry

    S-corps are quite similar to C-corps, more so than LLCs. LLCs require a lawyer to alter the operating agreement for any change (well, you can do it yourself). Add an owner? Adjust the operating agreement.

    LLCs don’t have stock shares. You have “units”. Altering these requires (you guessed it) lawyer intervention.

    LLCs aren’t recognized in Texas as far as I understand, and overseas work puts you on unsure ground.

    C-corps (Delaware C-corps) are also the preferred structure of choice for people raising capital. Tax advantages are simple. The company may make a profit of X, which it pays taxes on. You, as shareholder don’t pay taxes unless you extract this from the corporation. In the LLC, if the company made a paper profit (large cash flows, but paying off debt, etc doesn’t factor into this), you the owner will be hit with a large tax bill. Not to mention self employment tax.

    Basically after going through our taxes last week, the company did well. But we are going to be paying quite a bit for the company doing well. This is the case due to our structure.

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