You Don’t Want To Raise VC Money – Do An LLC

I’m chuckling as I write this.  After writing a few posts on S-Corps, C-Corps, and LLC’s, I had an email exchange today with someone that is putting together a small angel round.  He read my posts and concluded that he should do a C-Corp.  He’s only planning to raise a small angel round now and a follow-on angel round in a year – no VC, no significant financing, and no complex capitalization.  In addition, if the business is successful, it’ll start generating profits and positive cash flow in year 3. 

In this case, a C-Corp makes no sense, especially because of the risk of double-taxation if the business becomes profitable.  An S-Corp is fine, but the company potentially has a foreign investor as one of its angel investors.  In addition, the company is already an LLC, so converting to an S-Corp would be a pain.  Since the entrepreneur has no plans to raise money from VCs, the answer – in this case – was to stay as an LLC.

See – it depends.  Snicker.