Should I change LLC to C Corp?

[carolineisland]

I founded my company a little over a year ago. I’m developing a pet wearable with an interactive app and initially was told an LLC would be a good tax structure for my business. However, now I’m in the market for funding and I’m looking around at everyone’s C Corps and wondering if O did the wrong thing and if I need to change things now before we start making money. We’re pre-seed and have invested in our patent and CAD design but need funding for our prototype and initial rollout. Any advice would be greatly appreciated

 

[satonvn]

@carolineisland You will most likely need a C Corp if you go the traditional angel/VC route. With that said, some investors will allow you to do this as the next step after the check clears (with language requiring it, of course).

If you go the TinySeed route (give them a cut when you start taking a salary, likely a smaller investment but no exit strategy required), you can maintain the LLC. This would be akin to "fundstrapping," and is something more entrepreneurs should consider if they're comfortable with a "lifestyle business." VCs use the term in a perjorative sense, but "life-changing money" isn't nearly as much for most of us as entrepreneurs seem to think.

Physical tech makes getting funded either of these ways harder, unfortunately.

 

[carolineisland]

@satonvn Thanks I’ll check into TinySeed. I never heard of them

 

[satonvn]

@carolineisland @christian1991 is behind it. I highly recommend his podcasts "Startups for the Rest of Us" and "Microconf On Air" too.

 

[christian1991]

@satonvn

 

[kreative333]

@carolineisland thanks for mentioning TinySeed, looks like a good start for first-time founders, I signed up for the next cohort

 

[younglady2]

@carolineisland We we're in the same boat, started as an LLC and then went to Delaware Inc (C corp) for fundraising. You need a lawyer to set up a C Corp, you cannot wing this or else you WILL get fucked later.

You can't "convert" an LLC to an Inc. It's a completely different structure. What we ended up doing as per lawyer's guidance is to start a new company as the Inc, from which we bought all assets of the LLC for a token amount (essentially M&A).

edit: Looks like I misremembered about the conversion part, as per comments. A good lawyer will advise you on what to do.

 

[sentimental]

@younglady2 You can 100% convert to a DE C-Corp. This is super common practice. OP, talk to an attorney in your state/jurisdiction.

Source - Lawyer who has done it multiple times for clients. (I'm not your lawyer)

 

[higherground]

@younglady2 There is a conversion path for LLC to C-Corp. I used Stripe Atlas to form my startup and i initially chose to go with LLC. I got the same advice/feedback about converting to C-Corp so I reached out to Stripe Atlas. They sent me a bunch of doc templates and a referral to a partner law firm for help completing and filing them.

 

[kreative333]

@higherground this is the way. the price is nothing compared to the time it saves you. I previously heard about them, but just recently started to think about whether to incorporate rockstart.ai or not pre-seed. but some VC firms really want you to have an entity set up, even pre-seed, so it makes sense to do this (but just before you're sure you'll going full steam ahead)

 

[poman]

@higherground How much did the partner law firm cost you for the transfer to an C-Corp?

 

[carolineisland]

@younglady2 This is what I’m thinking.

 

[ryantgarant]

@younglady2 This is the way