California founders who run C corps as themselves are automatically W-2 employees. If they don't take a salary, they rack up unpaid wage claims over years. When they leave, they can sue for all that back pay. An LLC taxed as a partnership avoids this trap.
Depends on the vehicle that we're talking. Small cap, it may not be the case.
Yeah, if you're investing, if Estac invests in a convertible note or a SAFE, it's not mandatory that the company be a C corp. It might all be part of the terms. Yeah. And they would need to convert for us to invest, or— There might be good reasons to convert it, but it's not mandatory. And I'll just put a plug real quick. There's a weird aspect in California that if you form a C corp as a founder, you're going to be classified as a W-2 employee. And most founders don't pay themselves. And so if you have 3 or 5 founders of a startup all who formed a C corp and they run the C corp for 4 years and none of them pay themselves, they have 4 years of accumulated unpaid wages claims. And when founders dispute and one departs, there's a negotiation. And the founder, the departing founder, can often demand 4 years of unpaid wages, which could be hundreds of thousands of dollars. So there can be a good reason to form an LLC to avoid that problem. Because there's another weird law that if you're an owner of an LLC taxed as a partnership, you cannot be taxed. You cannot be classified as a W-2 employee when you're a partner of a partnership.
So you avoid that problem.
