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Dissolve CA LLC to form Delaware C-Corp

Santa Clara, CA |

I recently applied to form a CA LLC for my startup via NOLO, but I'm beginning to find out that investors typically invest in Delaware C-Corps. Can I just dissolve my LLC after it is formed and apply to form a Delaware C-Corp?

Attorney Answers 4


  1. Best answer

    In my opinion, this is a very unnecessary measure. Yes, institutional investors (Angels, VCs, PE, etc.) will prefer to invest in incorporated entities because the structure supports their objections. This, however, does not mean that they will turn their nose up to a great deal because the entity that supports the business is an LLC. This just doesn't happen for a variety of reasons the most important being the ease of which one can convert an LLC into an incorporated entity and the fact that entity type does not determine the value and future success of a business.

    I suggest you discuss your plans and objectives over with a business lawyer in private to get some guidance. Forming a DE corp may be the best move for your business, but I would not conclude that for the reasons you noted.

    Most of us here, including myself, offer a free phone consult.

    Best regards,
    Frank
    Natoli-Lapin, LLC
    (see Disclaimer)

    The law firm of Natoli-Lapin, LLC (Home of Lantern Legal Services) offers our flat-rate legal services in the areas of business law and intellectual property to entrepreneurs, small-to-medium size businesses, independent inventors and artists across the nation and abroad. 866-871-8655 Support@LanternLegal.com DISCLAIMER: this is not intended to be specific legal advice and should not be relied upon as such. No attorney-client relationship is formed on the basis of this posting.


  2. If you are seeking investors, you need to retain an attorney who practices securities law. First of all, the articles of incorporation for a corp. that will be seeking investors is far more sophisticated than you have imagined. There could be classes of stock, promotional/founders shares and registration with the California Department of Corporations even if you form a Delaware corp. because the securities law require that you register your securities in every state that you are doing business, or soliciting investors. Failure to do so with the knowledge that you know have could constitute securities fraud which can be a state and federal crime.

    You are venturing into an extremely sophisticated area of the law for which the use of NOLO is most inappropriate. Find you a securities attorney immediately and develop a clear understanding of legal landscape where you are treading.

    Hope this helps!

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  3. Investors tend to prefer Corporations over LLCs generally. The state of incorporation can be important to some investors or certain VC funds, but what is undoubtedly important in this analysis is ensuring that your incorporation (in whatever state you choose) is done properly and that you have the appropriate governance documents.

    Most sophisticated investors are going to want to see some due diligence on your company when you approach them regarding investment. They want to see that issues such as capitalization, IP protection, Buy/Sell Agreements amongst founders, and other related matters have been addressed. Getting all of these issues squared away shows that you are organized and provides assurance to investors.

    If you are starting from scratch and want to incorporate in Delaware, that's fine. You'll have to register in CA and pay their annual franchise tax, but you'd have to do that as a CA Corporation as well. More importantly - go talk to a lawyer who deals with start ups and securities so they can help guide you through the rest of the issues set forth above.

    Legal disclaimer: I am licensed to practice law in the state of Washington and the answer provided above is for general information purposes only and should not be relied on as specific legal advice. This answer does not form an attorney-client relationship. You should consult with an attorney of your choice to fully advise you about your legal rights and obligations.


  4. I agree with the attorneys who have already answered you, but I have a few additional comments. First, if you can, don't bother to start doing business in the LLC form. It is likely to complicate your tax filings at the end of the year. Second, generally you can incorporate very quickly in Delaware -- even same day service! However, I agree completely with my colleagues that incorporating with an attorney (instead of, for example, an online or telephone service) is well worth it. There are too many considerations that you will not think of on your own or get out of a self-help book.

    Disclaimer: This answer is provided for informational purposes only and is not intended to be relied on as legal advice. The information provided is general only, and no one should act upon this information in any specific matter without consulting with an attorney. No attorney-client relationship is intended to be formed by the conversations on this site.

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