It's for founders who don't have lawyers. My co-founder and I are both developers, we used Stripe Atlas to incorporate a C-Corp due to expecting to fundraise <1 year after incorporation. Stripe Atlas generates about 200 pages of legal boilerplate documents with very sane defaults so that your corporate structure, bylaws, IP protections, director indemnity, etc. align well with investor expectations. It helps investors not have to "rules-lawyer" all your corporate records during due-diligence, because their content exactly matches YC's expectations.
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I said we made a C-Corp but other founders should default to LLC, which Stripe Atlas can also streamline. An LLC is superior to C-Corp in pretty much every way for any pre-raise founders who don't have an extra $2,000 to >$10,000/year they're willing to part with for higher franchise taxes, "foreign" (different state) corporation registration, CPA's, and additionally lawyers if any investments aren't YC SAFE's (e.g. not YC, Neo, or A16Z SpeedRun).
Also note that for pre-revenue C-Corps, Delaware franchise taxes are scaled against number of shares, not company revenue or # of employees, so you can save some money by forming your company with 1,000,000 shares and then file a "Unanimous action of the board of directors" to increase it to 10,000,000 just before angel/pre-seed/seed round, and potentially save a few hundred dollars on your first year franchise taxes, depending on when you incorporate and raise. But if a few hundred dollars makes a difference to you, incorporating as an LLC instead of a C-Corp is the only defensible decision.
And as always, start your taxes 3-4 months before they're due. If you want a CPA to do them (which you should if you have any revenue), you'll need to retain them way ahead of time for C-Corps. If you're filling tax forms out yourself, you'll want to start at least a month before they're due.
Yes unless you have a very very very good reason it's always best to just file a basic LLC in the state you are a resident of. Only costs a few hundred dollars at most and doesn't really complicate taxes
This is totally false, sorry. Delaware entities are the standard. Delaware corporate law is better understood than any other by a long shot. Dealing with a random non-Delaware LLC is usually a hint that your counterparty is a rube.
Huh? You got any sources on that? I’ve never heard anyone say a non-Delaware LLC is a bad idea. And most sources seem to say incorporating in your home state is usually the right call.
I guess you didn't read my comment. I said unless you have a very very good reason one of which could very well be if you plan on immediately raising VC money. Most companies don't do that and will just end up wasting a lot of time by having a foreign LLC and tons of additional tax issues they have to deal with by having a corporation.
"The minimum tax is $175.00 for corporations using the Authorized Shares method and a minimum tax of $400.00 for corporations using the Assumed Par Value Capital Method." [0]
That is the "save a few hundred dollars" I was talking about. I did get the # of shares threshold wrong, it needs to be <= 5,000.
> They're wrong about the foreign registration -- in California (and I believe most other states), you also need to register foreign LLCs.
Yes, but I was referencing that it often costs more to register a C-Corp than an LLC (depending on the state).
> They're wrong about investments -- SAFEs are very easy for corporations (no lawyers required), but they can't even be used by LLCs. You'll need to convert to a C-Corp.
Yes. Totally agree on all points. This conversion will cost roughly the same as first year taxes, but leaves the option of not doing it if you never get enough revenue to hire employees and don't get funded. And if you do get enough revenue for that, or you get funded by SAFE's, you'll have no issue affording the lawyer+CPA who can do it for you.
As for it being a bad time to deal with that headache, I generally agree. You'd probably want to do that when you reach the point that you feel ready to start fundraising.
> They're wrong about investments -- SAFEs are very easy for corporations (no lawyers required), but they can't even be used by LLCs. LLCs don't have stock, and most boilerplate documents will not work for LLCs.
I miscommunicated on this point: I meant to say if you're not getting funded by SAFE's, you'll need a lawyer, and therefore the "saving money" thing probably isn't particularly relevant and there's no issue filing as a C-Corp.
Boilerplate documents work fine for LLC, and Stripe Atlas helps with this.
> Something about passing losses from an LLC to your personal taxes being a good way to get you audited.
I'm not sure you can do that? Haven't had to deal with it personally (my LLC's were profitable in their first year) but AFAIK capitalization is usually done with post-tax money so I don't see how first-year LLC losses can reduce your personal AGI.
> Something about tax paperwork burden being roughly equal for LLC vs. C-Corp.
I was mainly trying to say that CPA's charge more for C-Corps than for LLCs.
It's for founders who don't have lawyers. My co-founder and I are both developers, we used Stripe Atlas to incorporate a C-Corp due to expecting to fundraise <1 year after incorporation. Stripe Atlas generates about 200 pages of legal boilerplate documents with very sane defaults so that your corporate structure, bylaws, IP protections, director indemnity, etc. align well with investor expectations. It helps investors not have to "rules-lawyer" all your corporate records during due-diligence, because their content exactly matches YC's expectations.
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I said we made a C-Corp but other founders should default to LLC, which Stripe Atlas can also streamline. An LLC is superior to C-Corp in pretty much every way for any pre-raise founders who don't have an extra $2,000 to >$10,000/year they're willing to part with for higher franchise taxes, "foreign" (different state) corporation registration, CPA's, and additionally lawyers if any investments aren't YC SAFE's (e.g. not YC, Neo, or A16Z SpeedRun).
Also note that for pre-revenue C-Corps, Delaware franchise taxes are scaled against number of shares, not company revenue or # of employees, so you can save some money by forming your company with 1,000,000 shares and then file a "Unanimous action of the board of directors" to increase it to 10,000,000 just before angel/pre-seed/seed round, and potentially save a few hundred dollars on your first year franchise taxes, depending on when you incorporate and raise. But if a few hundred dollars makes a difference to you, incorporating as an LLC instead of a C-Corp is the only defensible decision.
And as always, start your taxes 3-4 months before they're due. If you want a CPA to do them (which you should if you have any revenue), you'll need to retain them way ahead of time for C-Corps. If you're filling tax forms out yourself, you'll want to start at least a month before they're due.