The form of entity you choose is largely determined by how you see your business developing and what you think your exit strategy will be. If you think you have a scalable company that you intend to grow quickly and finance with venture capital, and you intend to exit with a sale to an established company or an IPO (Initial Public Offering), you should strongly consider organizing as a Delaware C corporation. Even though venture investors will invest in limited liability companies in the right circumstances, they usually insist on Delaware entities, and the C corporation is still considered the “gold standard.”
Use of a corporate entity makes it easier to do things like adopt and administer executive and employee equity compensation plans, accumulate capital in the company for future goals, determine the timing of tax events, etc. Similarly, if you intend to participate in one of the top accelerator programs such as Y Combinator, 500 Startups or Tech Stars, you will be urged toward a Delaware C corporation. If you incorporate in Delaware, you will still need to register or qualify in the state in which you conduct your business, unless your business is based in Delaware.
If you do not know what your company’s path will be or if your company has a product or business model that will grow more traditionally (increases in profits require more or less proportional increases in inputs) or will be more of a “lifestyle” company that you intend to operate indefinitely instead of a “typical” startup with a scalable (increases in profits do not require proportional increases in inputs) business model with a planned exit, you may consider organizing as a limited liability company either in Delaware or in the state in which you have your main operations.
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.