So I'm incorporating my start-up. For now, life is simple (single owner, little to no expenses or income). But if the product gains sufficient traction within the next year or two, I expect to raise venture capital.
Having a C Corporation appears to be a prerequisite for such funding. But it also looks like investors would insist on reorganizing the company for any significant investment anyway (new bylaws, share structure etc).
The question then: Is it easier to reorganize a existing C Corp than to convert an LLC into a C Corporation? If not, I might as well start with an LLC, and save dealing with the lawyers and tax advisers for when an actual deal is being made...
If you are comfortable with an LLC, it could be a decent option. It certainly has tax advantages in the short term.
The main drawback of an LLC for a startup is that it will be just painful to add co-founders and generally anyone working for equity. C corps are great for issuing stock-options with vesting. It can be done with an LLC, but frankly if you do, you might as well have done a C corp from the start.
So to me, it's all a question of how likely you are to work alone for more than the coming year. If you expect to build a core team of 2 or 3 in the next 6 months, create a C corp.
There is also one major downside of waiting until funding to incorporate a C corp: you won't be able to issue cheap stock to yourself too close to a funding event.
You should start as an LLC (limited liability company). That gives you the best combination of liability protection, flexibility, and tax efficiency.
If you organize the business as an LLC and you need to bring in additional investors later, it is no more painful to add investors to an LLC than to a corporation.
Contrary to popular belief, an LLC can offer equity incentive plans that are more flexible and tax efficient that than stock options or restricted stock plans found in corporations. See http://www.strasburger.com/bios/bio_pdf/Browne-Equity_Incentive_Comp_Plans_for_an_LLC.pdf
LLC are easier to manage than c-corps. Fewer govt requirements. You can easily add cofounders as additional "members" and you can grant 'restricted membership interest" just like stock/options that vest.