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Over the past several months I spent a few thousand on a business idea and somewhat unintentionally created a small revenue stream. I am very much still in the R&D stage, but I would like to make my business a little more official. An LLC sounds like a perfect fit for my business now, and it seems a bit overkill to create a corporation at this stage, but in the future the business will need to be corporation.
From what I've read it sounds like it is recommended to start an LLC now and convert it to a corporation when required.
LLC is cheaper to start with. My company was an LLC & we did get investors, & stayed LLC just fine. If an investor insists on a C-Corp or S-Corp, then you can easily flip/convert when the time comes. Don't build too much up-front if it's not needed.
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My personal practice has been to create an LLC (they are simple, avoid double taxation and still support multiple classes of stock if needed). If and when the time comes to “convert” the LLC to a C-corp, the process is not that difficult. Whatever costs you’d incur in the “conversion” process, I think are offset by the upside you get during the time that you can benefit from being an LLC. An LLC can be setup for a few hundred dollars and likely meets the needs of most early-stage entrepreneurs.
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Note: I live in Washington. Not sure if that matters much, but I know LLC rules differ between states.
Have any of you had experience creating an LLC and converting it to a corporation later on? What are reasons not to take this approach?
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