Founders are often confused about when they should incorporate and what to do when investors say, "We will only invest in a C-Corp." Let's break it down quickly and then get more detailed.

First, incorporate WHEN YOU HAVE TO. In other words, AT THE LAST MINUTE.  Many founders run out and start a company before figuring out their product MVP. You should only incorporate if you are making money or need to manage your money in a corporate bank account. You can always do stuff under your individual name and transfer receipts to the company later. The company can owe you expenses, back pay, and all that good stuff.

WHY? Incorporation costs money. Why spend the money if you don't have to? Every penny counts when in startup mode.

If you do need to incorporate, do an LLC. If I recall, my LLCs cost $75 to do online (every state is different in price). I pay a bookkeeper a few hundred dollars to keep everything in order and file the annual stuff.

When should you do a C-Corp? ONLY WHEN YOU NEED SHARES.

Don't you need shares for investors? It depends. If I'm doing a SAFE, they only need shares once equity converts. So, in my contracts, I tell them I will turn into a C-Corp once they commit the money. Why would I spend thousands through all that pain if the money is not in the bank? The longer your C-Corp is without making money or raising funds, the faster you lose your runway.

There's the summary. Now, let's get detailed on what option is the best.

Whether it's easier to form a new C-Corp and transfer assets from the LLC to it, as opposed to converting the LLC directly into a C-Corp, depends on several factors, including the specific circumstances of your business, the nature of the assets, tax implications, and legal considerations. Here's a comparison of the two approaches:

Forming a New C-Corp and Transferring Assets

Pros:

1. Flexibility: You can choose which assets and liabilities to transfer to the new C-Corp.

2. Separation of Entities: Maintaining both entities can provide flexibility for different business activities or investments.

Cons:

1. Complexity in Asset Transfer: Transferring assets can be legally complex, especially if there are significant tangible assets, intellectual property, or contractual obligations.

2. Tax Implications: The transfer of assets might trigger tax consequences such as capital gains taxes.

3. Administrative Overhead: Running two separate legal entities can increase administrative tasks and costs.

Converting an LLC to a C-Corp

Pros:

1. Simplicity: A statutory conversion can be simpler, as it automatically transfers assets, liabilities, and operations to the new entity.

2. Continuity: Business operations can continue without interruption, and existing contracts, leases, and relationships often remain intact.

3. Tax Events: A direct conversion may avoid immediate tax consequences associated with asset transfers.

Cons:

1. State Restrictions: Not all states allow a direct conversion from an LLC to a C-Corp.

2. Tax Implications: Conversions can have long-term tax implications, especially with the C-Corp’s double taxation structure.

3. Rigidity: Once converted, it might be more challenging to revert or change the structure.

Choosing the Best Option

Business Goals: Consider your long-term business goals. For instance, a C-Corp might be more favorable if you aim to go public or bring in venture capital.

Legal and Tax Advice: Consult with legal and tax professionals. They can provide guidance based on your specific situation, including the tax implications of each option.

State Laws: The regulations and processes for conversion or asset transfer vary by state, so understanding the legal landscape is crucial.

If you need more help or advice on this, contact me!