C-Corp vs LLC. How much more complex?


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I am starting a technology business with my 50% partner. We are trying to decide between an LLC and a C-Corp. (We are in Michigan) In our case an S-Corp probably won't work too well. I've read a lot about the pros and cons of each. And we have valid reasons why a C-Corp might be better. What I can't seem to find is how much harder it is to manage a C-Corp than an LLC. Most literature says a C-Corp is more complicated and does not elaborate. Can you please give me more detail on the complexity of running a C-Corp?

LLC Incorporation Legal Company S Corp

asked Dec 5 '12 at 10:00
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Thread7
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4 Answers


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I'm in the process of converting from an LLC to a c-corp, so I can give you some perspective:

To start, try searching for sample c-corp bylaws and scan a few pages. Every well-formed c-corp has bylaws -- the laws by which your corporation is governed. Most bylaws are dozens of pages used to describe board meetings and fiduciary duties and so-on.

It's a little overwhelming at first, but they are there to bring consistency and accountability to your business, stuff that any good biz owner wants anyway.

I don't think bylaws are a requirement of a c-corp -- you an create a corporation with Delaware and file virtually nothing but the bare essentials. But while that might be fine for the short term, you're just pushing the complexity till later on.

If you form a "real" and "usable" c-corp with bylaws, it's more complex simply because there is more structure involved. But Keep in mind: you don't have to follow your bylaws if it's just you and your partner... you can skate by, as it's just YOUR company. But the more people who get involved (more execs, board members, advisers, investors), the more important it will be to play by the books (literally).

LLCs, on the other hand, are uber-flexible. There is no "standard" out there, beyond just copying c-corp standards and baking them into an LLC format. You can proclaim anything you want in an LLC, or proclaim nothing at all.

But when you grow, this free-form structure may or may not work for you. And when you talk with lawyers, almost all of them will recommend going the c-corp route because it's so standard. LLCs require them to actually think, write, and edit. Additionally, investors are LLC shy because of the lack of the c-corp structure (and thus protection) that they are used to.

I formed the LLC initially because I thought it was more simple, and I didn't expect to get serious funding. But lucky me, I did get funded, which means I get to learn all about the complexity of a c-corp.

In short, it's kind of like veggies. You can eat around them for a while, but eventually you need to eat your veggies to grow up big and strong.

answered Dec 6 '12 at 11:20
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Montego
61 points
  • Welcome to the site! Great first answer. – Zuly Gonzalez 5 years ago
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Not really complex. Shareholders' annual meeting, board meetings, share issuance, maintaining minutes, corporate secretary, officers need to be on the payroll, double taxation on income.

Actually, quite complex. But manageable. If you can't do it yourself, you can always pay a lawyer to be your corporate secretary and take care of the bureaucracy.

answered Dec 5 '12 at 10:07
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Littleadv
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  • Thank you for the downvote to my anonymous admirer. I think there are still a couple of my answers you haven't downvoted yet. – Littleadv 5 years ago
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As a practical matter, the issue is not complexity: Usually it comes down to holding annual shareholder and board meetings and preparing minutes of those meetings (or written consents in lieu of meetings).

When I help clients with this process, it usually takes just a couple of hours, so it is no terribly expensive. Please see Annual Meetings: The Basics.

Disclaimer: This information does not constitute legal advice and does not establish an attorney-client relationship.

answered Dec 6 '12 at 03:34
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Dana Shultz
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If you do go with an LLC realize that for U.S. Federal Income tax purposes an LLC is a 'disregarded entity'.

If don't elect for your LLC to be taxed as a corporation then your entity is by default taxed as a partnership.

This means that anyone to whom you latter want to give equity becomes a partner. That's usually not what you want to happen.

Be sure you include a competent tax practitioner (not just a business lawyer) in your entity formation discussions.

answered Dec 6 '12 at 08:37
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Jim In Texas
218 points

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