C corporation would be optimal from the brief description. Allows for the best tax situation with minimal personal liability and multiple outside investors.
Advisor, co-founder, consultant and part time executive to Tech Start-ups. Based in Silicon Valley.
March 14th, 2016
I would actually engage a lawyer. Twice now I have relied on co-founders to help set up our company, where we have convinced ourselves we could save money by doing it our self without a lawyer, once where we set up a C-corp and once where we set up an member managed LLC corp. Both were big mistakes, and as it turns out, each one picked the choice that would have been ideal for the other company, and chose the wrong one for our own company. The problems these errors caused screwed up financing opportunities and other actions, or cost us in lost tax abatement opportunities, etc.
The issues really are very specific to your company, how you are planning to finance it, how you want to get money out, how you are going to benefit employees or attract partners, etc. So really do lay all that out to attorney and get good advice.
while you CAN raise money as an LLC or S Corp - the reality is that both are not the norm for companies that go for funding. That means you have to sell not only your idea, but the idea of investing in an LLC or S-Corp. QED you've just made it harder for yourself.
OTOH if you plan to fund yourself with Grants, contracts, and loans - (SBA etc), the LLC makes reporting a lot easier
I would start as LLC in the interest of being lean and have your investors fund your inevitable transition to a C-Corp. Happy to discuss as there are many schools of thought, and several options depending on the amount of your company's investment requirement(s)...
It depends on how many investors you plan to have and what type of investor they are. If you plan to keep the equity primarily to yourself then an LLC or S-Corp. I am not a lawyer by any means and don't have specifics for you, but I do know there are special rules about what type of investors and how many you can have for those two types. It is because LLCs and S-Corps get different tax and legal liability treatment than C-corps. A LLC more or less acts a a pass through to the owner's income, if I am remembering correctly.
From the way you have written your initial statement though, I get the sense that you are looking for institutional investors and probably several rounds (Seed/Angel-> Series A -> Series B). You will need to have a C-corp if this is the case. Also, do your due diligence on what your number of authorized share count should be, par value of each share, if you desire preferred (which is yes if taking institutional money), how many preferred shares to authorize, and most importantly, how many shares to issue. If you plan to have high growth, leave lots of room for additional shares to be issued to investors upon their conversion from preferred.
The decision may seem simple, but it's really not. Be sure to do your homework on this one, several days of research can mean the difference of tens of thousands of dollars in either tax or legal fees down the road, not to mention the headaches.
I would recommend the books "Slicing Pie" and "The Founders Dilemmas" to help answer some of the formation questions, as well as how to avoid blowing up your business due to hurt feelings over equity splits.
I hope this helps, and best of luck with your new baby.
Founder & CEO of Laicos Startup Studio, Fundraiser, Connector, Investor, Startup Scout, and Mentor.
March 14th, 2016
I'd do it right from the start and incorporate your C corp in Delaware. If you're comfortable proceeding without counsel, reach out to the company below to help you.