I recently created DedaSys as an LLC in Oregon for the grand total of $55. I will probably have to do more research and spend more of my own time to make sure things are done properly, and that I don't miss anything, and I'm sure I'll have an accountant do the taxes. However, I actually didn't mind the research, being the kind of person who likes to know how things work. I'll probably spend some of the money saved on books (or, even better, maybe I'll check some books out of the library when I'm home this summer).
Remember, you can always transform an LLC into a C corporation at a later date. To me it made sense to start small, and only spend that money when I'm sure I need it.
FWIW, I've sold two LLCs (one to private buyers and one two a VC backed dotcom). Worked fine. Both had sub ~$500 in legal setup fees.
As you say, it's easy to move from LLC to C. Start it easy and quick (but do your trademark homework) and see if you can build a successful product. Statistically speaking, you probably can't, in which case you haven't wasted dollars on lawyers.
If you start to feel like your product is taking off (or has potential to), get off your butt and invest in some real legal help to get your ducks in a row.
Of course, if YC will help you do it right out of the gates-- that's dandy.
"Remember, you can always transform an LLC into a C corporation at a later date."
Sure, but the process is not easy nor cheap! It will cost you more to convert LLC to a C than by forming C right away.
What you should have done is form an S and then convert it to C later on. Converting S to C is a matter of filing one form and you don't even need an accountant/lawyer to do it.
"Shareholders must be U.S. citizens or residents, and must be natural persons"
Since I live in Europe, the potential to find and add a co-founder or two who is not a US citizen is there, and an LLC would still work for that, afaik. Or at least it may be a possibility, whereas I'm sure it isn't with an S-corp.
If you are anywhere in the EU you can probably start a British limited company, even if helpful government officials say you should register with the local overpriced companies registry. In The Netherlands there are several law firms that specialize in this, and they charge about EUR 500. I imagine lawyers in other EU countries have figured out the same trick by now. One thing to keep in mind is that you may expose your company to being sued in the UK, but you probably should be avoiding getting sued anyway.
Yep, thought about that too, but in the end, it's still an order of magnitude more expensive, involves a country I'm less familiar with than the one I'm from, and I just wanted to get something set up for Squeezed Books without thinking the choice through any more (I've been considering it for several months).
You can also consider setting up a single proprietorship or an unlimited partnership for the time being. That's a lot cheaper in Holland, and I imagine also in most European countries. The only big problem is that you cannot borrow money without being personally liable, and you cannot sell shares, but if you just need a "business" for the time being for tax purposes and to order stuff from places that will only sell to businesses (more common in Europe than in the US), it will do fine. In fact, I once set up a single proprietorship for the sole purpose of being able to buy food for cheap at a restaurant supply store, and it cost me about half of the Oregon LLC referred to earlier, and was done in a half an hour at the Chamber of Commerce, without lawyers involved.
Remember, you can always transform an LLC into a C corporation at a later date. To me it made sense to start small, and only spend that money when I'm sure I need it.