The big issue with LLC's is that you technically can't be a W2 employee of one and hold equity in it; stakeholders in an LLC are all principals, and have to be compensated through distributions.
For employees, lots. Employees want W2 wages. They don't want to pay quarterly estimated taxes and they want the company to pay its share of payroll taxes.
The sense I get is a lot of companies here don't foresee having "employees", at least until after their hoped-for A round closes. OK. Switching to a C corp from an LLC isn't that big a deal, as long as none of the founders have left by then.
I'm not sure what the problem is here. I worked as a salaried employee (in California) for an LLC from 1998 to 2001 (after which it incorporated). I got a ton of restricted stock options at a near-zero strike price, as was the custom at the time. Certainly an LLC can hire people and give them equity (options, in this case).
Either laws have changed, or maybe you've misinterpreted?
It's very possible I've misinterpreted the advice we got from our legal and our accountant, but my current understanding is, you cannot simultaneously be a "member" of and and "employee" of a limited liability company, according to IRS rules.
An LLC doesn't have "owners", only "members", so any equity stake you have in one technically makes you a member.
There very likely are trivial ways around this, and I'd be interested in hearing them.
An LLC is effectively a partnership with limited liability (it's a corporation with partnership-style pass-through taxes), and the IRS rules on owners vs. employees for partnerships are very clear.
Again: equity is ownership; LLC's don't have "owners", they have "members".
