Why is Google a corporation and YouTube an LLC? Both, of course, chose Delaware as their corporate home, even though they are headquartered elsewhere.
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?
There are 2 comments left for Is an LLC a corporation? What's the Difference?Bindeshwar Kushwaha said: Saturday, February 3, 2018
I wanted to know about LLC and I found your article useful, thanks for sharing.HBS Staff replied: Monday, February 5, 2018
Thanks for reading our blog! Glad you found it useful.Stephen Bertsch said: Wednesday, January 17, 2018
I really loved reading your blog. It was very clear, concise, and to the point. I am an LLC, and I think I will continue to be that, as I want to keep things simple. Thanks for the info, and have a wonderful day!