Start with LLC and convert to corporation later


6

Is it possible to start with an LLC to avoid the overhead and convert to a corporation later when there is some visible traction and need for raising funds from outside investors?

Legal

asked Feb 5 '10 at 10:59
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Abhay Vardhan
126 points

6 Answers


3

Yes, it is possible. This interview will give you further information.

answered Feb 5 '10 at 12:10
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Rahul
1,612 points
  • +1, and this is exactly what I did. – Jason 10 years ago

1

Short answer: Yes.

I see that you are here in the Bay Area. The CA Secretary of State provides a form to help you get pointed in the right direction.

You need to know, however, that such a conversion can result in a tax hit (you would need to discuss this issue with your tax advisor) in addition to the direct costs of conversion.

Accordingly, if you anticipate conversion, you should think about whether it might be better to form a corporation in the first place. You might find Should I form an LLC or a corporation? helpful.

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

answered Feb 5 '10 at 15:37
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Dana Shultz
6,015 points

1

Spending the time to figure out if it makes sense to set up a LLC or S Corp up front is great advice.

A LLC is much easier to set up than a S Corp and many people do so without a lawyer.

However, for a S Corp using a lawyer to help with the articles of incorporation and the annual meeting minutes, etc is best. Thus the overhead and filing requirements are more for a S Corp.

answered Feb 5 '10 at 19:46
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Starr Ed
948 points
  • I don't see what is so hard about setting up an S corp. It takes about 2 minutes on one of the sites that do this for you (the same time it takes to set up an LLC) – Tim J 10 years ago

0

The cost of legal fees and risk of tax implications isn't worth it. Trust me, I just tried the reverse, to convert a Corp to an LLC, finally giving up and starting a new company.

Just decide what you want to be and stick with it.

If you plan on raising money someday just setup a Corporation, if you never intend on having other owners I'd stick with an LLC...but definately hire a lawyer even for an LLC...as without the proper operating agreement you are essentially a sole proprietor (vulnerable). Best $700 you could spend.

answered Feb 13 '10 at 02:35
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Chris Dansie
491 points

0

I think the major overhead if I am correct is having to pay self employment tax versus paying payroll tax. I thing setting up payroll tax might be tougher. When I went through the process myself I choose LLC mainly for the reason that paying self employment tax is simple. Payroll tax seems as if you have to set up a formalized payroll process for which you may need an outside vendor like ADP. Again this is what I picked up from reading online. I would love to hear what more experienced entrepreneurs think.

answered Feb 10 '10 at 07:12
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Aac
85 points

0

I am not sure what "overhead" you think you will avoid with an LLC as opposed to an S corp/

IMO it is not worth the hassle later.

If you plan on being a corp, be a corp.

answered Feb 5 '10 at 14:08
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Tim J
8,346 points

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