The first employees would be principals. None of the initial employees would be principals, but we might need to hire if things go well.

Put it this way: if every employee will receive 1099 distributions instead of a W2 paycheck, or if no W2 employee will formally be given equity to begin with, you're better off with an LLC.

If not, you were right to go for an S-Corp. It's just paperwork, and you're not going to screw yourself over with it. We're converting right now without a huge amount of legal pain.