Business Startup

Entity Structure Considerations When Choosing Between a LLC and a Corporation

It’s important to understand the significant (and sometimes subtle) differences between the various choices when determining the right entity structure for your new venture. Today’s post details some important distinctions between corporations and LLCs.

The Distinction Between State Entities vs. Federal Tax Elections 

For state law purposes, there are two primary entities that the choice of entity generally comes down to: corporations and LLCs. Corporations and LLCs both offer limited liability to owners of the company. This means that (absent extraordinary circumstances) if the business is sued, only business assets are at risk and the ownerss personal assets will be shielded from the company’s liabilities.

For federal tax purposes, there are three primary tax classifications that most companies are organized under: C corporations, S corporations, and...

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Business Startup

Choosing a Business Entity: Understanding Double Taxation v. Pass-through Taxation

When forming a business, an important thing to consider is how profits will be taxed. Different corporate structures have different tax consequences. “Double taxation” refers to situations where corporate profits are taxed and the corporation’s shareholders are personally taxed upon receiving dividends or distributions of those profits.

“Pass-through taxation” refers to situations where income “passes through” to investors or owners. Common types of pass-through entities are limited liability companies, limited liability partnerships, and S corporations. The partnership or company itself is not directly taxed; however, the income of the partnership is taxed, and these taxes are passed through to each partner according to their ownership interest, regardless of whether that partner actually received a distribution (i.e. money in their pocket) or...

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Business Startup

Why do Venture Capitalists Prefer to Invest in Corporations?

With the rise in formation of limited liability companies (LLC), why do venture capitalists (VC) still prefer to invest in corporations? This is a common question within the startup community. With so many choices—partnership, LLC, S corporation (S corp), C corporation (C corp), etc.—it can be a challenging task to pin down exactly what form of legal entity to choose for your new business. However, if your business plan is dependent on seeking VC funding, your entity choice can be narrowed down to one: the C Corp. Today’s post details the most important reasons why venture capitalists prefer to invest in corporations.

Stock and Shareholder Restrictions One benefit to a  C corporation is that it allows for two or more classes of...

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