Can you explain why it makes a difference to run as an LLC if you are not expecting funding? My company is expecting funding. So should I insist on creating a corporation instead?
VCs will insist, as a requirement of the raise, that you change your corporate structure to a C-Corp. This is because LLCs pass-through income to the shareholders. The VCs' limited partners may have severe problems with this - for instance, a foreign entity might suddenly have US income, forcing them to file a US tax return.
In other words, if you know you're raising money, you might as well structure the company correctly in the first place, since you'll just have to pay lawyers to redo it when you raise.
The big risk in going from a sole proprietorship that you don't own to a corporation is to you personally, not to the startup. I would only consider such an arrangement if my co-founder was compelled to follow through on the deal - for instance, if you retained full ownership over the IP you created until the company was properly structured. But why set up a Mexican standoff when you can just do it right the first time? It's not the hardship your co-founder is making it out to be.
In other words, if you know you're raising money, you might as well structure the company correctly in the first place, since you'll just have to pay lawyers to redo it when you raise.
The big risk in going from a sole proprietorship that you don't own to a corporation is to you personally, not to the startup. I would only consider such an arrangement if my co-founder was compelled to follow through on the deal - for instance, if you retained full ownership over the IP you created until the company was properly structured. But why set up a Mexican standoff when you can just do it right the first time? It's not the hardship your co-founder is making it out to be.