

Ask HN: Best business structure for 3-person part-time startup - phicou

Two friends and I are planning to start a web business and were wondering what type of business structure is best forour situation.  We intend to do this in our spare time, and we are not planning to seek outside investments or loans,at least for the time being.  Our initial project is small in scope, but we feel it will be profitable.  In addition,it will give us a chance to try working together and see if we want to try out something more ambitious (our "change the world" project).  We're wondering what type of business structure will be best for us.<p>We would prefer to:<p>* limit our liability (in case someone has a bad experience because of something from our site)<p>* keep our business based in our home state (WI), unless there's a strong reason not to<p>* minimize the need to involve accountants, attourneys, etc.<p>* Keep taxes simple and avoid double taxation.<p>We've been looking at descriptions of partnerships, LLPs, LLCs, and S-Corps, but we aren't familiar with all the nuances.  Does anyone with experience in this area have a recommendation for our situation?  Are there other factors we should be considering here?
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jacquesm
From your description an LLC sounds like the way to go. Partnerships have all
kinds of drawbacks, depending on your locality you might become liable for
your partners debts. An llc is a good step up to becoming an 'Inc' when and if
you are more successful.

It will give you more (a lot more) protection from a legal point of view than
a partnership and you still have the same benefits tax wise.

Tax laws regarding llcs vary state by state so plese make sure the above
applies to your state.

If you plan on picking up venture capital or doing other things that will
require outside partners then you really should look at incorporation, it is
my experience that such activities are much easier to undertake when your
business is a legal person in its own right (which an LLC is only to some
extent).

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Travis
LLCs are the "hot" structure right now for a lot of things, but they don't
necessarily have the case law to back them up. So it's possible that you could
come up with a situation where there is no precedent.

That said, my co-founder (an attorney) set us up as an LLC initially (when we
were doing consulting type work). We just switched over to an S-Corp because
of investment requirements (we took seed funding). Also, VCs want you to be an
S- or C-Corp

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modoc
We have a very similar situation. After talking with our accounting company,
and our attorney, the consensus was to go with an LLC incorporated in our home
state. It was easy, and so far has worked out very well.

Only advice beyond that is to hire an accountant/accounting co to handle your
books and make sure your business tax, quarterlies, etc... are all handled
correctly. Well worth the investment.

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kyro
I was in a pretty similar position recently, and we decided to go with an
S-Corp. We figured we'd avoid the double taxation, and if we happened to take
VC funding, switching to a C-Corp would be relatively easy, as most VC's
prefer C-Corps, or so I've heard.

Just don't get bogged down in making that decision like I was for a time.

