I am an LLC, can I still raise funds?
You can raise capital inside of different legal structures that include the Corporation (C corp) and the Limited Liability Corporation (LLC).
Listed below are the requirements for the two corporations in order to raise capital from investors:
Corporation (C corp)
The investor just simply needs to sign the purchase agreement. A purchase agreement is a legal agreement between the corporation and the investor who becomes a shareholder. StartEngine's legal counsel has created a standard agreement for your investors so you do not need to draft your own.
Limited Liability Corporation (LLC)
The investor needs to sign the purchase agreement and the company's operating agreement. The investor receives units in the LLC and not shares. By signing the operating agreement, the investor agrees to become a member. The company will also need to issue a yearly K1 tax return to each member. Because OPOs raise capital from hundreds or thousands of investors, it means a company will have to prepare and send every year a customized K1 for each investor. This can be costly and time consuming.
Converting from an Limited Liability Corporation to a Corporation
It is a very inexpensive and fast to convert an LLC to a C-corp. However, once it is converted, there is no way to go back to an LLC. It is a only a one way conversion. Keep this in mind when deciding if you would like to do this.
We recommend you speak to your attorney about the process for the conversion. It may be different in each State.