I often hear people (including Brad Feld in the relevant article on the front page of HN right now) saying that a corporation is the right choice if you plan on seeking funding, because venture investors don't want the pass through income that an LLC can create. VC's generally don't want to create Unrelated Business Taxable Income for their investors.
I don't understand why these VC's don't just create a corporation to buy stock in a LLC's. I know for a fact that at least some venture firms do this (I worked at one that did). A corporation can own stock in an LLC, and corporations (when the elect to be a C-corp, which I assume the VC would do) don't generate pass through income.
The only explanation I can think of is perhaps if someone is making small, angel or YC style investments. Then, the administrative cost of setting up and maintaining an additional "blocker" corporation for each investment would be significant in comparison to the total dollars invested.
I am very curious to know what the reason that firms that are investing hundreds of thousands if not millions of dollars don't do this.
Having a C Corp is necessary only if you are seeking _venture_ funding. Other funding, like angels, friends+family, etc is available to just about all types of corporate structure, depending on the skill of your lawyer in setting up the investment structure.
Most businesses won't ever get venture funding, so setting up a C Corp now "just in case" is typically a big waste of money and effort. Instead, used some other entity type, then if you really need to, convert to a C Corp. Your early $ are far better spent marketing your product than on lawyers for corporate formation activities.
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I often hear people (including Brad Feld in the relevant article on the front page of HN right now) saying that a corporation is the right choice if you plan on seeking funding, because venture investors don't want the pass through income that an LLC can create. VC's generally don't want to create Unrelated Business Taxable Income for their investors.
I don't understand why these VC's don't just create a corporation to buy stock in a LLC's. I know for a fact that at least some venture firms do this (I worked at one that did). A corporation can own stock in an LLC, and corporations (when the elect to be a C-corp, which I assume the VC would do) don't generate pass through income.
The only explanation I can think of is perhaps if someone is making small, angel or YC style investments. Then, the administrative cost of setting up and maintaining an additional "blocker" corporation for each investment would be significant in comparison to the total dollars invested.
I am very curious to know what the reason that firms that are investing hundreds of thousands if not millions of dollars don't do this.
Having a C Corp is necessary only if you are seeking _venture_ funding. Other funding, like angels, friends+family, etc is available to just about all types of corporate structure, depending on the skill of your lawyer in setting up the investment structure.
Most businesses won't ever get venture funding, so setting up a C Corp now "just in case" is typically a big waste of money and effort. Instead, used some other entity type, then if you really need to, convert to a C Corp. Your early $ are far better spent marketing your product than on lawyers for corporate formation activities.