Is it better to form a corporation or LLC before starting a search?

May 25, 2021

by a searcher from University of California, Riverside in Rancho Cucamonga, CA, USA

Is it better to form a corporation or llc before starting a search? Just to get the general legal stuff down. After that step, then search out backers. I would like to try and beat the average of 18 months for the search fund process.

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Reply by a searcher
from United States Naval Academy in Sherman Oaks, Los Angeles, CA, USA

I am in the early stages of my acquisition search and I created an LLC specifically for the purpose of acquiring companies. Once an acquisition is made, my intention is to split the new company off into it's own corporation. I feel that this will make the acquisition smoother. Also, I created a LinkedIn company page for the LLC, bought a URL and will build out a simple website explaining the purpose of the acquisition LLC. I believe that this will help build credibility with sellers.

Also, California Governor Gavin Newsom has waived the $800 minimum annual franchise tax for its first taxable year in 2021, so there's no reason NOT to create the LLC now in CA. (https://bit.ly/3p54bMl)

Hope that helps.

Reply by a professional
from University of Denver in Denver, CO, USA

Forming an entity can make your business look more professional, it allows you the ability to establish a separate bank account for tracking expenses, and can provide limited liability protection. LLC or Corporation is a nuanced question. If you are the sole owner, then an LLC is great because it will be a disregarded entity for federal income tax purposes by default. Plus it is easy to convert to corporation if investors demand it in the future. If there are multiple owners, then the question is tougher to answer without more back and forth questioning. Send me a note if you want to discuss further. .

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