LLC vs INC: a guide for startups - Startups 101

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The single hardest thing about starting a business is that you have to make extremely impactful decisions too early in the game- with too little information.
These are company-defining decisions in a time where your brain is probably focused on building, bootstrapping, or paying the bills, and not necessarily on paperwork- or a legal structure that might not make any difference.
The problem is, though, the legal structure you choose makes a HUGE difference in how your business might operate, how it might grow, how it might be sold, or even in how liable you or your investors are about the mistakes the company might make.
I searched for a simple, plain English video that let startup founders understand the type of structure they needed- and I couldn’t find any.
You can even find hundreds of contradicting opinions online.
So I gave our own legal team a call, and I spoke to legal firms inside and outside the US to understand how these different legal decisions might affect founders in the short and the long term.
So here’s what we’ll go through in this video:
The basics of legal entities.
Understanding which entity works for which kind of business.
The difference between stock and ownership.
Raising rounds of funding with an LLC vs. a C-Corp.
Taxes on each type of entity.
Common state and international exceptions.
Big disclaimer, this video will not touch on other types of entities because that’s not what the title says.
No really, because these are the two most common types of entities, and we don’t want to overcomplicate it.
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[@slidebean]

Starting a business can be overwhelming; we know it! What other topics would you like us to cover to help you go through this process? In the meantime, remember to get your LLC in the US with Tailor Brands: tailorbrands.go2cloud.org/SH9X

[@adavidalex212]

As a tech lawyer, I can confirm that you totally nailed it with this guide!

[@Bambotb]

What's your duties as a tech lawyer

[@adrees]

What’s your website to ask about your services?

[@Viviko]

I always go with LLCs. It’s mostly because I stay as a self-funded small business. If I find a venture where I need to raise capiral, I may move to a C Corp. Generally I start as an LLC. When I decide I need to bring in VCs, I call up my council and usually they suggest and assist in changing to a C Corp.

[@codelucky]

That's a good way. Alright, so let's say an LLC registered in Wyoming entitled Xaax LLC has three SaaS products (Saas A, B, and C), and an investor wants to invest in SaaS A, therefore the founder has decided to pull SaaS A out of XaaX LLC and form SaaS A, Inc as a C-corp in Delaware. What is the feasible method?

[@Ahmediss]

@@codelucky I am hoping to get an answer for this cause I do have a LLC (also based in Wyoming USA) for my E-Commerce business and i am based in UK. Should I dissolve my LLC and start a C-Corp. (planning on doing it). or should I let my LLC just let it be and I am not doing any business on the said LLC at the moment. Have been busy in other ventures

[@rakileh]

Thank you for this I’m building out a startup that is on track to redefine the foundational training base of the medical profession globally and videos like this are always insightful

[@LaAlquimista1111]

What’s the name of your startup?

[@nirdmarshal7270]

What's the name of your startup please

[@michaelchachashvili1098]

One of THE BEST channels out there! Thank you for every second you share

[@michaelchachashvili1098]

Someone to ban that guy?

[@horaciorodd]

This is content is so valuable, thank you.

[@ObinnaAkahara]

This is so good. Spent a week trying to understand this and you summarize it so well

[@migo-migo9503]

Great video! This is something I have been wondering about for years. Thank you for making this vid. I hope this one gets multi million views!

[@slidebean]

Glad it was helpful! helps us get to the million views by sharing ;)

[@thealiusjones]

It really depends on whether you're trying to do things or get things done

[@H0mework]

Thanks for making this video, I love the animations too.

[@butterflysrage]

This is so useful! I'd love to see your input on other international incorporation hubs (Ireland, Malta, Carmen Islands, etc), and the pros/cons of these other extremely low tax options?

[@JJ-si4qh]

More like this, please!!

[@tuams]

Somehow, you timed this topic perfectly! Thank you! Quality content as always.

[@cdcore09]

I’ve had this question so often. Thank you for the video!

[@chatvendertechnology]

Can we start with an LLC and later upgrade it or changes it?

[@skbillionman]

Yes, though it will cost more

[@AAD2120]

How much “more”? Thousands of dollars? Hundreds of dollars?

[@MidwestWind]

You’ve earned my like 👍

[@herdi1510]

Thank you for making sure that my decision is right thing to do.

[@NanoBytesInc]

Super high quality video!

[@jonny-b4954]

Should have included S-Corps in this.

[@michaels8297]

It’s not an entity

[@jonny-b4954]

@@michaels8297 Ah right, right. It's a tax classification for a corporation. Not a business entity itself. Might have been worth mentioning though in terms of startups.

[@no_fox_given]

T’is must watch. Must know facts for all startup stakeholders

[@alexleung842]

I always go C Corp. If you're always extracting profits rather than reinvesting, you aren't building the business right. If you aren't extracting profits, then C Corp taxation is cheaper than LLC. I also like keeping company income totally separate from the complexities of my own personal finances.

[@bjorn6084]

can't you also count one of the company expenses as a salary to yourself?

[@ugaas3074]

I like the background music at the minutes" 14 "

[@AAD2120]

Can you convert from an LLC with 5 total owners to a Delaware C Corp after collecting 1st seed round of investments? Would you advise to do so in advance and if so, in advance of the SAFE Note agreement with investor or just before the investor actually executes the fund transfer? Also, does the company lose its QSBS tax exemption status by converting down the road after already receiving raised funds?

[@ardentvibe6917]

Considering a C Corp can transition to an S Corp with a single filing, allowing it to become a pass through entity - the main point that’s made in this video isn’t exactly accurate.

[@orangeSoda35]

Such an informative video.

[@aprildev1]

Blue Candy..... also great video

[@joaquinz.c]

Great video, thank you.

[@chrystarinze]

Hi @slidebean Please could you make a new video explaining preferred state to incorporate a startup Delaware or Wyoming? I'm asking this with respect to Elon's recent experience with Delaware court and whether or not startups should officially move their incorporation to Wyoming instead

[@slidebean]

Simple. We can do that for you: slidebean.com/pricing

[@codelucky]

Let's say an LLC registered in Wyoming entitled Xaax LLC has three SaaS products (Saas A, B, and C) and an investor wants to invest in SaaS A, so the founder has decided to pull SaaS A out of XaaX LLC and form SaaS A, Inc as a C-corp in Delaware. What is the feasible method? And how to run multiple products company?

[@lancesay]

just sub'd...

[@Bambotb]

Awesome channel

[@tylerhackner9731]

Interesting topic for a vid

[@jamesachesa9455]

Selling blue candy.... I see what you did there Caya😏

[@romitkarmakar5169]

Americans love to sue people 🤣

[@adoniastebebe]

What if the LLC is opened by Non-US citizen, how do you get taxed then?

[@Ahmediss]

Same question from me as well. Did you got an answer yet. I am based in UK

[@guelbergoes]

those offers, what movie they come from?

[@skbillionman]

Breaking bad

[@nsofwawalklog]

LLC or C hmmmm .. ohh wait am sole driving

[@321ecommercedotnet3]

Cool

[@craiggazimbi]

First to be here 😂

[@iamantrometik]

Nope.