Ask HN: What are pros and cons of using an LLC holding company in startup?

[ishmaelsokolow]

Let's say you have a company with a launched product. The company is incorporated in Delaware. The founders that started the company all have shares in an LLC which owns 80% of said company. The company has raised a decent amount of seed money and debt. Shares in the LLC can be redistributed at any time with a unanimous vote by all founders (6).

There are only three active founders at this stage, one of them technical.

What are the pros and cons of the above structure as the company pushes for a Series A? Or, how should this company ideally be organized.

[russell]

IANAL: my comment is worthless, but

Pro: it's cheaper.

Con: investors dont like LLC's so they will make you convert to a C type, so in the long it will be more time, hassle, and money than you would have saved.

[Travis → russell]

Going through this now. We started as a consulting LLC. Then developed IP/ideas, decided that's what we wanted to do (develop one of the major apps / business ideas we had). Had to switch to C Corp.

Although that switch was beneficial, as it forced us to do our due diligence on ourselves, and make sure all the legal work was setup. One of the guys in the startup has a law degree, so it was cheap... but we're really happy we have our paperwork together now that we're talking with vcs.

[dennykmiu]

http://www.google.com/search?hl=en&safe=off&client=s...

This topic has been discussed quite extensively in the past. Good luck.

[ishmaelsokolow → dennykmiu]

This isn't as simple as corp vs. llc, the company in question is already incorporated. Investors have invested in the incorporated company. However, the founders have ownership through an LLC.

[dennykmiu → ishmaelsokolow]

Then the issue isn't about the LLC but that only three out of the six original founders are active. I would try to find a way to reduce the 80% ownership of the LLC and give the difference to the active founders. Or to find a way to buy out the three non-active partners. If that's in fact the objective, then keeping the LLC might actually be quite useful. Keep in mind that when you start to make money, all proceeds distributed to the LLC is subject to self-employment tax, something that might not be optimal for the non-active founders. In short, find a knob and start turning. Good luck.