Early startups as an S-Corp?

SteveJ

I am just getting the courage to start an internet company that will be a combination of retailer/social network.  I plan on bootstrapping this company for as long as I can, but figure that I will eventually need VC funding.  I am trying to figure out if I should start out as an LLC or an S-Corp.  I have read plenty and have concluded that an S-Corp is the right longer term strategy.  However, I have read that I must pay myself a “reasonable” salary if an S-Corp.  I have no plans of drawing a salary for up to the first year and will potentially bring on people who will also work for a stake in the company, but no salary.  Based on this, should I just do LLC and end up switching later to an S-Corp, once revenue/profits are at a point that we can draw a salary and at the point we start to seek outside funding?



 



Thanks for your thoughts.


Steve



 

robertj

Which structure will be best for you - depends upon your specific situation and goals.
 
Here are some general comments;
1. It is much easier to convert an LLC to a corporation than to go the other way.
2. You probably wouldn`t convert an LLC to an S corp but rather to a C corp.
3  There are limitations on the S corporation which make it unwieldy when bringing in outside investors - especial the professional angel or VC type.
 
If you want to discuss your specific situation send me a PM.
 

pepperlegal

Steve,
The SBA website (www.sba.gov) has some good information on this.  I`d also be happy to chat with you to give you my thoughts.