This question was asked by @Djordje Planincicin our chat. We thought it would be great to answer it here so other can learn or join in. (Thanks Djorde!)

TLDR From Ed Kang: I always start with an LLC to keep my costs down. Then I tell investors I will turn into a C-Corp when their cheque hits the bank if that's what they want. If I use SAFEs or convertibles for the funding round, I try to stay an LLC. Pretty much anything is possible if you're clear on the paperwork. But that's my preference. Exceptions always apply.

Here's some more formal official information to help you make the decision:

When starting a new venture, the decision of the legal structure is paramount. Two common choices for entrepreneurs and investors are the Limited Liability Company (LLC) and the Corporation (specifically, the C-Corp). Each offers distinct advantages and disadvantages depending on the business's nature, the founders' goals, and long-term vision. Let’s explore the pros and cons of each to determine which might be best for your venture.

LLC (Limited Liability Company):

Pros:

1. Flexibility in Taxation: LLCs have pass-through taxation, meaning the company is not taxed. Instead, profits and losses are reported on the owners' individual tax returns or "members."

2. Operational Flexibility: LLCs typically don't have rigid structures or protocols. Members can define their operational and financial relationships in the operating agreement.

3. Limited Liability: Like C-corps, LLCs provide personal liability protection, which means members aren’t typically held personally liable for company debts and liabilities.

4. Less Paperwork: Compared to C-Corps, LLCs usually have fewer state-imposed annual requirements and ongoing formalities.

Cons:

1. Self-Employment Taxes: Earnings from an LLC might be subject to self-employment taxes.

2. Investor Perception: Some institutional investors may hesitate to invest in LLCs because of their unconventional structure.

3. Limited Life: Depending on state law, an LLC might be dissolved when a member leaves or dies.

C-Corp (Corporation):

Pros:

1. Investor-Friendly: If you're considering raising venture capital, many institutional investors prefer (or require) C-corps because of their familiar structure and equity distribution.

2. No Limit on Shareholders: C-corps can have unlimited shareholders, which can benefit businesses looking to expand and go public.

3. Potential Tax Benefits: C-corps can benefit from certain deductions and fringe benefits.

4. Perpetual Existence: The corporation continues to exist even if shareholders leave or sell their shares.

Cons:

1. Double Taxation: Profits are taxed at the corporate level and then again at the individual level when distributed as dividends to shareholders.

2. More Paperwork: C-corps must have annual meetings, maintain meeting minutes, and meet other administrative requirements.

3. Regulations: C-corps are subject to more regulations and oversight than LLCs, which can increase costs and decrease operational flexibility.

Which One Should You Choose?

1. For Bootstrapped or Small Ventures: If you plan to keep the business relatively small, fund it yourself, and prioritize flexibility, an LLC may be a better choice.

  

2. For Ventures Seeking External Funding: If you plan to seek venture capital or have aspirations to go public in the future, a C-corp might be more appropriate, given its investor-friendly structure and unlimited shareholder potential.

3. Tax Considerations: Discuss with a tax advisor how each structure might impact your personal tax situation and the potential tax benefits for your business.

In summary, the decision between forming an LLC or a C-corp largely depends on your business goals, venture nature, and personal preferences. It's always recommended to consult with legal and financial professionals to make the most informed decision for your specific circumstances.