As an entrepreneur, you make many decisions. While many of those decisions won’t affect you long-term, the corporate structure of your business may have a huge impact on your organization from now until you close the doors or sell out. An LLC is probably the easiest corporate structure. Depending on your goals, an LLC may not be the best choice.
Here are four reasons you may want to consider an S or C Corporation for your corporate structure.
- Investors can complicate their personal tax situation by being a member of an LLC. Even if no cash is distributed to LLC partners, they could be taxed on the business income.
- Some investors can’t invest in LLCs, because of their tax-exempt status. A venture capital fund may have tax-exempt partners that can’t receive business income.
- LLCs complicate state taxes. Non-US persons may be subject to income tax in states where the business operates.
- C-Corp stock is a simpler investment for many investors. Investors acquire stock, which is the asset. There are no tax complications until the stock is sold.
Should You Go the LLC Route or Not?
Your decision about your corporate structure will largely depend on your future goals. If you’re a startup that hopes to grow quickly, you may want to consider a C Corporation structure rather than an LLC. You should talk to your business attorney about the implications of each structure to see which one fits into your needs.
Bottom line – you should have some structure to your business to protect your personal assets and give you some structure to your organization. You may find some benefits within each structure that will make you think about tax implications and investors. Consider adding a line or two to your business plan to remember why you chose the corporate structure that you did.
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