Is an LLC a corporation? What's the Difference?
Why is Google a corporation and YouTube an LLC? Both, of course, chose Delaware as their corporate home, even though they are headquartered elsewhere.
So why did Google choose to form as a corporation and YouTube as an LLC?
The corporation vs LLC distinction is clearly defined by this one example of which the new generation of entrepreneurs should take full take advantage.
Please note, this is not a question of “which is right?” or "which is better?" It is, however, a matter of strategy.
YouTube actually started as a corporation, filing its Certificate of Incorporation with the Delaware Division of Corporations on October 3, 2005. On November 8, 2006, just 13 months and five days later, it converted its corporation into an LLC, which is one of the key advantages of Delaware companies: they can change from one form of entity to another, whenever they want.
Google, as you know, was incorporated in 1998 and is listed on the NASDAQ, after its 2004 IPO. Even though much of Google is owned by institutions, there are millions of individual shareholders in the company.
YouTube LLC, on the other hand, is owned by very few members. Nobody but the insiders know how few, and nobody but the insiders know who the owners are.
In addition, only the owners know the details of the company's finances, because no public disclosure is required; that’s the benefit of a Delaware LLC—your members, their ownership percentages and your financial valuation are private matters, of which only the company insiders are aware.
There is no public registration, no public disclosure and no federal requirement of any type that necessitates the owners of a Delaware LLC to reveal who they are on the public record.
Google chose to be a Delaware corporation so it could go public and raise money, which it did on August 16, 2004. Once it did so, it quickly became one of the richest companies in history. Google's rise to power created tens of thousands of millionaires and a lot of billionaires.
YouTube originally planned on following the Google, Inc. model, but they soon met the real Google people, as well as other investors, and found that cash was available to YouTube without going public.
If capable investors offer you a tremendous amount of money, why disclose who owns you? Why disclose your governance structure or your finances? Why be regulated by the Stock Exchange and the S.E.C.?
If you can get the investors without going to the public markets, you’re much better off keeping it simple. That was the YouTube approach beginning on November 8, 2006, and that’s what makes the company valuable to its owners...whoever they may be.
So, as the next successful entrepreneur, which would you choose?
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There are 6 comments left for Is an LLC a Corporation? What's the Difference?
Big time dreamer said: Wednesday, February 7, 2024Fascinating read, very helpful thanks from ???? Recently started a small business with you guys as an LLC hope to share an enriching journey and learn more.
HBS Staff replied: Thursday, February 8, 2024Thank you for reading our blog. We look forward to working with you.
Earl Worsham said: Wednesday, October 27, 2021What is the best state to establish a LLC - cost, annual fee, taxes such as an F&E tax?
HBS Staff replied: Wednesday, October 27, 2021Hi Earl,
We would be bias if we didn't say Delaware is the best state to establish your LLC! Depending on where you will be operating your LLC, annual costs and taxes vary. Our formation for domestic LLCs cost $179 - and that includes one full year of our registered agent service. Our sales team can help walk you through setting up your Delaware LLC and any foreign qualifications you may need. They can be reached at 1-800-345-2677.
Len said: Wednesday, May 15, 2019If AN LLC IS NOT A CORPORATION HOW DIO I FILE TAXES AS WHAT? A PTRNSHP OR??
HBS Staff replied: Wednesday, May 15, 2019Len - an LLC is a pass-through entity. Taxes are generally paid on personal tax returns rather than corporate filings. We recommend you speak with you accountant if you have any questions about how to pay your taxes.
Robert Redden said: Sunday, April 8, 2018I have a house in Florida, that I want to get a permit for, to build a porch, that we will be using for our nonprofit. The house is owned by a Delaware LLC and is entrusted to me. The building inspectors office will not give me a permit because they say it is entitled as a “corporation”. I have told them it is not a “corporation”, it is a Limited Liability “company”. To get a permit in the name of a corporation it will cost $30,000+ for a licensed contractor to build. To get it in my name as the owner of a “Company”, will cost about $3,000 to build it myself. I am a master carpenter and have been in the construction business for 40+ years. Is there some way to convince them that it is legally a “company” not a “corporation” Thanks, Robert
HBS Staff replied: Monday, April 9, 2018We have two suggestions. One, you could print out your LLC's information from the state of Delaware's Entity Search page, found here:
https://icis.corp.delaware.gov/Ecorp/EntitySearch/NameSearch.aspx. Once you enter the name of your entity and its state file number, the search results page should indicate that your company is an LLC.
You could also order a Delaware Certificate of Good Standing, which would list your company's name, including the "LLC" part. This document should prove your company is an LLC and not a corporation. You can order a Certificate of Good Standing here: https://www.delawareinc.com/ourservices/delaware-certificate-of-good-standing/
Hope these ideas help.
Bindeshwar Kushwaha said: Saturday, February 3, 2018I wanted to know about LLC and I found your article useful, thanks for sharing.
HBS Staff replied: Monday, February 5, 2018Thanks for reading our blog! Glad you found it useful.
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