Should I incorporate or do an LLC?
I am building a startup. Right now I am thinking of having a company that is an umbrella around the different attempts I make. Which would you suggest? Should I incorporate or do an LLC? What are the pros and cons? I am planning to do it in Delaware (as a foreign entity). Is this the way you would go? I am very new to all this stuff as I more on the technical side of things right now
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There are a tremendous number of variables to consider which are not included in your question. This makes answering in a way that you will find meaningful difficult. I would review the "related questions" about the various forms of incorporation and re-ask this question. you can find the related questions in the right column right under "tagged"! – Joseph Barisonzi 13 years ago
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You're in high school right? I'd skip the formal entities for now and just focus on building whatever you are building. If you need to form an LLC or Corporation later then do so - but no need to hassle with all that now. There are better things to do. – Tim J 13 years ago
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@Tim I understand that, but I was just thinking that I should have some legal entity around it to allow me to be making money off it etc. legally. – Chromedude 13 years ago
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You don't need an entity to make money legally. The entities are for other reasons. – Tim J 13 years ago
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@Tim ok, I see, but I guess I see it to be important to have a company face. – Chromedude 13 years ago
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Sure - all you need to do is register a D.B.A at your local town/county offices. That is a lot cheaper and less hassle than creating an LLC or Corp for something you don't know will work yet. – Tim J 13 years ago
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@Tim ah... I see, thanks that looks good. Are you able to stop being a DBA and become a LLC or Corp anytime? or is it permanent? – Chromedude 13 years ago
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You can create an LLC or corporation any time you want. You are the owner of the IP - you can do anything you want. Transfer all rights and assets to the other when you want to If you really have your heart set on making an LLC or a corporation, do so - but then you have additional financial drains ($500 or more per year for the privilege of being a corporation depending on your state) and filings you have to do each year. It's just not worth the extra work and money if there is no real need right now. – Tim J 13 years ago
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@Tim I completely understand and I definitely think I will go with the DBA currently. Thanks for all the help. – Chromedude 13 years ago
4 Answers
LLC is equally another form of incorporation. It is a legal entity.
A striking advantage with LLC is your ability to control the life span of the business. What do I mean? if you are not so sure of the success of your business and you want to ditch it without much legal obligation, then LLC is the way to go. You can do LLC for just 5 years and dissolved the company thereafter without legal obligations that comes with dissolving a corporation.
I've done both types of formations. I incorporated in the State of Delaware, did my LLC in my home State of Connecticut.
I'd suggest you do LLC first. Give yourself some legal cover, take good advantages that business ownership offers you.
Ebuka Okonkwo
Why do it in Delaware? I recommend doing it wherever it is the least hassle. Until you're making money, taxation is a secondary issue (it's worth paying attention to, but I wouldn't trade anything off operationally for tax structuring until you're making enough money for it to be worth it).
That said, the main advantage of incorporating anywhere is limited liability. Do it somewhere, anywhere.
I would pay careful attention to the laws of the state you're incorporating in, as well as the laws of the states you want to do business in. I know in New York, at least, it's cheaper to create an INC, since LLCs formed in New York have to publish noticies of formation in local newspapers, and depending on where you incorporate, this can cost over $600. Furthermore, to hire people in New York State as an LLC registered outside the state, you have to register as a foreign corporation.
But, the advantage of an LLC compared to an INC is a that you'll avoid double-taxation.
I have formed both LLC and S-corps (INCs) in multiple states, and the biggest factors on my mind are:
- The cost of incorporation
- The lifespan of the business
- Whether or not it is easy to incorporate by yourself
The DIY part, for me, is important, since it allows me to learn how business operate in the particular state, gives me a good base of knowledge from which to draw questions when hiring management and lawyers for the corporation, and lets me know that if the business goes bust, I'll be able to dissolve it all by myself.
Having an umbrella company around your different attempts may make a lot of sense. The traditional red flag that is experienced by consultants such as myself when I hear that is -- divided energy. Start-ups are extraordinarily difficult. Focus is essential Focus on one effort -- don't divide your energy among many. Once that is successful and growing you can branch out. You will then have the resources engage a lawyer to properly set up the appropriate structure to "umbrella" your endeavors.
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I definitely see what you are saying... I might not end up doing more than my first website. If that one seems to have a lot of potential and pull a good number of people I probably will not go on to anything else, but focus on that one. – Chromedude 13 years ago
