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0 pointssachinag17y ago0 comments

It's just a fundamentally different structure - LLCs were invented in the 80s, so the conversion is a huge PITA. If you want the benefits of incorporation, you should strongly consider incorporating as an S-corp (if you qualify: must be US citizens, no more than 75 shareholders, all of whom must be natural persons).

To change from an S-corp to a C-corp is just one piece of paper. You're already a corporation, not an LLC, and you get the flow-through benefits and limited liability.

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2 comments · 2 top-level

Brushfire17y ago

I've heard this from other people too, but as an owner of both LLC's and Corps in the past, why is it so difficult? Just sell one company's assets to a new company.

If everyone is on board for the 'new' structure, then this should be trivial. If you have investors, you grant them new shares equivalent to their old LLC member %.

LLC"s have huge advantages too, if you dont plan to raise money, or only do it from a few people. The fact that you can allocate losses and gains regardless of ownership % means that you can allocate tax losses to an investor who may only own 20%. Them taking a tax loss is effective to them not paying more taxes, so it is a form of benefit for them.

tptacek17y ago

The paperwork issues are a red herring. The same things will bite you in the ass any time you convert from any structure to any other structure; it's just a coordination problem.

There are minor tax benefits to an LLC, and there's a major simplicity benefit. The driver (for us) to move to S-Corp is to safely grant equity.

There is no reason to overthink any of this. Just do what's easiest. But don't run a sole proprietorship just because an entry in the YC FAQ says you're easier to fund without incorporating. News flash: YC isn't investing in you anyways; by all available evidence, your odds of being accepted are low, probably lower than your odds of just succeeding with the company.

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