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Pertaining to a new mISV (software business), should I choose an S-Corp or an LLC. Which would you choose and why?

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5 Answers

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There isn't a definitive answer that's true for every mISV.

The best resource I've read to help you think through the options is LLC or Corporation? How to Choose the Right Form for Your Business from Nolo press. It's written by an attorney for small business owners. It contains a good overview of the issues and considerations.

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I second Keith's advice on that book. In fact, all of Nolo's books are excellent. I've been able to find most of the Nolo books at my local library. Some have been worth buying as references, others are one-time reads. This is probably one of those. – Zuly Gonzalez♦ Jul 7 '10 at 1:39
While really worthwhile I do agree it's probably one time read. It's funny that I use the library for travel and fiction and history reading but somehow never thought about looking there for work related books. Great advice on the library Zuly! – Keith DeLong Jul 7 '10 at 15:36
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This question comes up frequently.

You may find Should I form an LLC or a corporation?, and its related posts, helpful.

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

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S-Corp is ideal for a company with fewer than 30 employees and a non complicated ownership/ profit sharing structure. A S-Corp avoids the double taxation associated with corporations by passing profits directly though to the owners at their percent ownership. They also provide legal benefits by sheltering the owner’s assets from litigation in some cases. An S-Corp cannot be formed with more than 30 employees.

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Which jurisdiction(s) will you be operating in?

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New York, Connecticut and New Jersey for a start. – PhantomTypist Jul 8 '10 at 1:38
Re: New York, LLCs are subject to an expensive publication requirement in the larger counties, while corps are not. See: tinyurl.com/yf3vlwx – Henry the Hengineer Jul 8 '10 at 18:20
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It depends on what your future situtation. Do you anticipate on raising funds through a VC for future expansion with your software company? If so, a C-Corp would be the most attractive structure. Even though LLC's have been around for awhile and are very popular with startups, there is still a lot of gray area with laws surrounding LLC's. Corporate laws have been around for many many years and have been tried and tested in the courts. Thus, when VC's look at funding companies they almost always shy away from LLC's. VC's primarily are interested in in companies that are structured as an S-Corp or C-Corp mainly because investment offerings are more protected in that structure. Of course which route you pick in terms of S or C-Corp will be up to you based on your company's specific financial and tax situation.

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