I am building a startup and want to incorporate it, I was gonna do LLC but someone suggested C-corp. What's the benefit(s) of one over the other for startups specifically and why?
"If you ever want to take outside investment, you'll want to be a Delaware C corp. It's just standard and investors know how to deal with it. Even Facebook started as something else, but had to reincorporate.
It's not too difficult to fix, but might as well the avoid the problem in the first place." [1]
Start it as an LLC. You'll make the Subchapter S adoption for the IRS. It used to be that VC's would not fund an LLC, but that is not the case anymore.
You can change your LLC into a C-Corp any time, or you can form an LLC and have it acquire the LLC for tracking purposes if your VC wants a c-corp.
LLC's pay taxes as an S-Corp, which means all the income and expenses pass through to you, the owner, and taxes get paid on the profit based on your personal tax rate.
Significantly less paperwork for one. You can form an LLC with a single sheet of paper in some states. No separate tax forms to file. Any losses pass down to the members, which is especially beneficial when you are starting since lots of startups(in fact any new business) will probably have losses. I am not an accountant, but I think you can also offset income from previous years if your losses exceed your total income.
Edit: I'm not too familiar with the S-corp election for C corps, so most likely most of the pass-through benefits apply there as well.
It took me about 20 minutes to form a C corp in NJ , using the state's website. I don't know how much easier it can get. BTW, if you have an LLC , you still have to file the S corp election form with the IRS.
All I can say is that you should definitely speak with an accountant before deciding what is best for your situation
Keep in mind that LLC filing vs C/S corps varies per state. In the great state of New York, it's a real pain to create an LLC. I believe you have to run a publication in trade magazines for your industry, selected by the state. Of course... it's New York state and they are an infuriating state gov't to work with.
"If you ever want to take outside investment, you'll want to be a Delaware C corp. It's just standard and investors know how to deal with it. Even Facebook started as something else, but had to reincorporate.
It's not too difficult to fix, but might as well the avoid the problem in the first place." [1]
[1] http://www.quora.com/Y-Combinator/Why-does-Y-Combinator-reco...