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LLC or C corporation

aniloanilo subscriber Posts: 2
edited May 2008 in Business Planning
Hi guys,
 
Thank you for response on my earlier thread. It has helped me eliminate S corporation . I am now trying to decide between LLC & C corporation.
 

Do angel and VC investors fund LLC corporations ?
 


My plan for the next 6 yrs is outlined below:
 
1. First 6 months: be self-funded. Make loss.
2. Next 6 months: get angel funding. Make loss.
3. Next 3 yrs: Get Series A, B & C - VC funding. Make loss.
4. Next 1 yr: Make profit.
5. Then: go public.
 
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I know to be a public company I would have to be a C corp., but do you think I could start with a LLC corporation for now and then change in the 6th year to a C corp (just before going public).
  
Thanks,
-Anil

Comments

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    robertjrobertj subscriber Posts: 0 Member
    The LLC structure is realatively new (compared to the Corporation). Some venture firms are beginning to accept it as a viable investment structure - but most prefer the C corp.
     
    On the other hand there are some advantages to the LLC during the early stages, plus they offer some flexability for your capital strategy.
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    thetaxdudethetaxdude subscriber Posts: 0
    Anil,
     
    The nice thing about a LLC is the ability to elect how it`s treated for tax purposes.  In LLCs where there is more than one member, the default is file tax returns as a partnership.  The members of the LLC can elect to be taxed as a corporation.  Within that option is another option to elect to be taxed as either an S or a C corporation.
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    TaberTaber subscriber Posts: 1
    I am in the process of starting up a technology-based company.  In fact, I have formed an LLC and have started the process of locating others to assist me in my business endeavors. 
    Since my `master idea` is one of technology and I am not a techology sort of guy, I have consulted a software design company to help out.  Upon our initial meeting, we both signed a bi-latgeral Non-Disclosure Agreement (NDA) and shared our ideas.  This company believes strongly in my idea and has proposed a business partnership.  This company is a C-corp. 
     
    They have proposed that we form another C-corp with their C-corp and my LLC as the partners.  Honestly, I do not fully understand the intricacies of this type of entity. 
     
    NOW MY QUESTIONS:  Is this type of arrangement common?  Is it legal?  What are the advantages and disadvantages of forming such a partnership?
     
    Any input is greatly appreciated. 
     
    Thank you in advance.
    Taber2/11/2008 12:30 PM
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    robertjrobertj subscriber Posts: 0 Member

    They have proposed that we form another C-corp with their C-corp and my LLC as the partners.  Honestly, I do not fully understand the intricacies of this type of entity.   NOW MY QUESTIONS:  1. Is this type of arrangement common? 2. Is it legal?  3.What are the advantages and disadvantages of forming such a partnership? Any input is greatly appreciated.   Thank you in advance.
    Response to your questions1. This looks like a joint venture - which is not uncommon.2.  If properly done - it is.3. Many things to consider, starting with a clear understanding of the rights of each participant in new venture.
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    adam0001adam0001 subscriber Posts: 0
    Anilo,
     
    In response to the last part of your post:  The statement that you have to be a C-corp to go public is not necessarily true.  There are really no legal problems that I know of with taking an LLC public although I`m unsure if it has acctually been done.
    As for whether you should form an LLC or a C-corp, check out http://www.centerpointcorporate.com or give them a call.  They helped me out with forming a corporation.  I live in Cali but formed a Nevada S-corp through them.  They were super helpful in helping me decide what kind of entity to form.
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    robertjrobertj subscriber Posts: 0 Member
    adam,
    Did they mention that you will have to pay California income taxes on all the income generated by your Nevada corporation?
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    thetaxdudethetaxdude subscriber Posts: 0
    Adam,
     
    There are several publicly traded partnerships formed as LLCs on the NYSE.
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    bja528bja528 subscriber Posts: 0
    Anilo,
    FYI, if you are in CA, think twice about an LLC.  Unfortunately, CA will tax LLC`s on their GROSS proceeds rather than the Net proceeds, which means they won`t allow deductions for your expenses.  The IRS will allow all your deductions, but CA won`t, so make sure you talk to a qualified tax professional so that you can make the correct decision. 
    Have your tax person do a hipotetical tax return and compare  both scenarios and find out what you will end up paying for taxes in each case, if you have a good tax person, and want to keep you as a client, they will do it for a small fee or even free.
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    thetaxdudethetaxdude subscriber Posts: 0
    Anilo,
     
    It`s possible to incorporate in Nevada, but if your Nevada corporation or LLC does business in California it would need to obtain a certificate of authority to do business as an out of state company in California.  A Nevada corporation, LLC or any other foreign entity that does business in California is subject to California`s annual franchise tax and income tax on income derived within California.
     
    A foreign (organized outside California) limited liability company must complete and file an Application for Registration (Form LLC-5) with California`s Secretary of State. A certificate of good standing from the home state (Nevada) must accompany the Application for Registration. The fee for filing the Application for Registration is $70.00.  Every limited liability company which is doing business in California or has filed Articles of Organization or an Application for Registration with the Secretary of State`s Office is subject to the annual limited liability tax of $800. The tax must be paid for each taxable year until a Certificate of Cancellation is filed.
     
    As far as the $800 minimum annual franchise tax in California, it applies to LLCs, corporations and S corporations.  In addition, although a S is a pass through entity for Federal tax purposes, California imposes income tax on them.
     
    LLCs in California taxed as partnerships must pay an entity level tax based on the "total income" reportable to California for the tax year. "Total income" means worldwide gross income, plus the cost of goods sold, paid or incurred in connection with the LLCs business.
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