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?
THE AUTHOR OF THIS BLOG ARTICLE IS NOT A LAWYER AND HARVARD BUSINESS SERVICES, INC. IS NOT A LAW FIRM. THE ARTICLE ABOVE IS NOT INTENDED AS LEGAL ADVICE AND SHOULD NOT BE TAKEN AS LEGAL ADVICE. THIS SHORT ARTICLE IS STRICTLY TO MENTION SOME ASPECTS OF DELAWARE’S CORPORATION LAWS AND/OR LAWS RELATING TO OTHER FORMS OF ENTITIES WHICH YOU MAY NOT BE FAMILIAR WITH. WE RECOMMEND THAT YOU CONSULT WITH A LAWYER BEFORE FORMULATING A STRATEGY WHICH WILL BE SUITABLE FOR YOUR SPECIFIC CASE.
There are 3 comments left for Is an LLC a Corporation? What's the Difference?Robert Redden said: Sunday, April 8, 2018
I 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, RobertHBS Staff replied: Monday, April 9, 2018
We 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, 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!