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So I'm incorporating my start-up. For now, life is simple (single owner, little to no expenses or income). But if the product gains sufficient traction within the next year or two, I expect to raise venture capital.

Having a C Corporation appears to be a prerequisite for such funding. But it also looks like investors would insist on reorganizing the company for any significant investment anyway (new bylaws, share structure etc).

The question then: Is it easier to reorganize a existing C Corp than to convert an LLC into a C Corporation? If not, I might as well start with an LLC, and save dealing with the lawyers and tax advisers for when an actual deal is being made...

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If you are comfortable with an LLC, it could be a decent option. It certainly has tax advantages in the short term.

The main drawback of an LLC for a startup is that it will be just painful to add co-founders and generally anyone working for equity. C corps are great for issuing stock-options with vesting. It can be done with an LLC, but frankly if you do, you might as well have done a C corp from the start.

So to me, it's all a question of how likely you are to work alone for more than the coming year. If you expect to build a core team of 2 or 3 in the next 6 months, create a C corp.

There is also one major downside of waiting until funding to incorporate a C corp: you won't be able to issue cheap stock to yourself too close to a funding event.

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Very interesting answer, and I would love to see this fleshed out a bit. (1) With an LLC couldn't he enter into an agreement with the cofounders concerning their respective ownership following conversion to a C corp.? (2) Concerning the inability to issue cheap stock to yourself, I would think that even if he did this, the investors could essentially undo that as a requirement of their investing in the company. – Kekito Jan 6 '12 at 14:07
(1) yes, but that's what is complicated, non-standard and error prone. Why reinvent the wheel? If you want vesting stock-options, do a C corp. (2) actually, the investors don't care too much, cheap common stock is perfectly normal (the investors get preferred shares that are more expensive). It's the IRS that will complain. – Alain Raynaud Jan 6 '12 at 16:39
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LLC are easier to manage than c-corps. Fewer govt requirements. You can easily add cofounders as additional "members" and you can grant 'restricted membership interest" just like stock/options that vest.

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