1. It's true that institutional VC isn't going to invest in an LLC. It's also part of the C.W. that institutional VC isn't going to invest in your C Corporation either; there's going to be thousands of dollars spent in restructuring your corporation one way or the other. It's probably not true that having an LLC is going to prevent you from getting an investment. If you're worth a VC round, you'll get a VC round; it's just a question of how much of that round will go to legal fees.
2. The tax issues for LLCs aren't particularly complex. In fact, tax simplicity is one of the reasons LLCs exist. If your LLC is paying you --- you're post-revenue --- you need an accountant. Don't DIY your taxes. I've done dumb things with taxes before. Learn from my errors: it's not worth the heartache to blow off your taxes. Just get an accountant.
3. There are common constructs used to grant equity to LLC employees (I believe they're formally "restricted stock units", but, ask your lawyer --- who you certainly needed to engage if you were building a C Corp). The bigger issue to my mind is the fact that the founders of an LLC, formally "principals", "owners", or "partners", technically aren't supposed to take W2 income, which makes taxes trickier.
Against all of this complexity just note that an LLC is way easier to set up than a C Corporation, and if it's between an LLC now and a C Corporation "sometime soon but not quite yet", please remember that the benefits of incorporating are significant:
* You are unlikely to lose your house in a contract dispute.
* You can invoice and be invoiced.
* Big companies will have a harder time rolling you into letting them withhold taxes for you when they pay you.
You can always organize as an LLC and "check the box" (make an entity classification election) within 75 days to have the LLC treated as a corporation for tax purposes.
I'm pretty sure you can elect for S Corporation treatment any time (I don't know if it costs more later on, I just know that we did it only within the last few years).
1. It's true that institutional VC isn't going to invest in an LLC. It's also part of the C.W. that institutional VC isn't going to invest in your C Corporation either; there's going to be thousands of dollars spent in restructuring your corporation one way or the other. It's probably not true that having an LLC is going to prevent you from getting an investment. If you're worth a VC round, you'll get a VC round; it's just a question of how much of that round will go to legal fees.
2. The tax issues for LLCs aren't particularly complex. In fact, tax simplicity is one of the reasons LLCs exist. If your LLC is paying you --- you're post-revenue --- you need an accountant. Don't DIY your taxes. I've done dumb things with taxes before. Learn from my errors: it's not worth the heartache to blow off your taxes. Just get an accountant.
3. There are common constructs used to grant equity to LLC employees (I believe they're formally "restricted stock units", but, ask your lawyer --- who you certainly needed to engage if you were building a C Corp). The bigger issue to my mind is the fact that the founders of an LLC, formally "principals", "owners", or "partners", technically aren't supposed to take W2 income, which makes taxes trickier.
Against all of this complexity just note that an LLC is way easier to set up than a C Corporation, and if it's between an LLC now and a C Corporation "sometime soon but not quite yet", please remember that the benefits of incorporating are significant:
* You are unlikely to lose your house in a contract dispute.
* You can invoice and be invoiced.
* Big companies will have a harder time rolling you into letting them withhold taxes for you when they pay you.