The Enlightened Esquire

The most common mistake I see psychedelic founders make in their first ninety days: they form a Limited Liability Company (“LLC”) because that’s what founders do. The default LLC is right for many psychedelic businesses, but it’s wrong for a meaningful share of them.

Three quick examples:

1. Religious-use organizations almost always need a nonprofit corporation, not an LLC. The structure has to match the substance of the work.
2. Operators planning to raise institutional capital need a C-corporation, not an LLC. Investors will require the conversion later, and the conversion is expensive.
3. Mission-driven, for-profit ventures often get the most utility from a benefit corporation structure, which is barely on most founders’ radar.

The default LLC is a fine answer when it’s actually the answer to the question. It is not the answer to the question of “what kind of entity should I form” by itself.

If you are forming something this quarter, have the conversation about entity selection first. The structure is hard to redo later, and the cost of getting it right early is trivial compared to the cost of getting it wrong.

First shared on LinkedIn by Deja Correia, J.D. Educational only; not legal advice.