Hi all. I am launching a tech startup later this year in which we will be asking for not only small seed money to help us get started, but also larger amounts of money to really help us make money.
I've spoken to a couple of lawyers who advise starting an LLC, but I can't issue stock with an LLC, so I'm really not quite sure how an investor would give us capital. What would they get in exchange? Also, since there's no stock in an LLC, I don't have an opportunity to issue preferred or common stock.
So I guess I'm not really sure why people keep advising me to start an LLC vs an S-Corp. The same tax laws apply if I tax my LLC as an S-Corp, so it'll still be a pass-through entity instead of taxing the corporation. I'm not really sure why people are so worried about the corporation being taxed in the first year or two, as we'll be losing money those years in order to grow the business.
Finally, in the case of a lawsuit, wouldn't either most lawsuits (corporation filed in DE) result in a settlement and if not, and we LOSE the lawsuit, wouldn't our insurance just pay for the lawsuit?
I guess, in the end, I don't understand why LLC's are so popular. I have nothing to hide, so being anonymous isn't important to me. I just want investors to buy stock in exchange for equity and I can either do that under an S-Corp or a C-Corp, right?
First of all, you can issue (sell) ownership in an LLC. Where a corporation sells "shares"- an LLC sells membership units (Units).
Secondly, an S corp has several restrictions on ownership- one being that it can only have one type of stock (common).
Hope this helps. If you want to discuss your situation, feel free to drop me a PM or contact me directly (email address is in the signature)