Hiring Engineers for LLC startup

Chris Barsness, startup, finance, law, and tech nerd

The problem with an LLC is that these issues are not as easy to deal with.  If you plan to grow and seek funding, convert to a corporation.  In most states, it is a very easy thing to convert from LLC to a corporation, usually just a form filed with the secretary of state (of course you still have to keep records of authorization to make those changes and put together bylaws etc.).  It generally is a better form for future growth, fund raising, classes of equity, and flexibility in incentives for consultants/employees.  

It is not that an LLC is a bad type of entity, but the structure is for managers and members that is good for small or closely held companies and other specific situations.  Ownership interests (equity) take the form of membership interests where the new member would have similar rights to distributions of profits and potentially share in losses, which all depends upon the state of formation, operating agreement, and other factors.  If you can't afford to keep paying him similar to a full time employee (with payroll tax withholdings and other requirements) after the site is done, just pay him the cash as an independent contractor with incentives to finish early or penalties for delays in completion and forget about ownership interests.

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