It is a conversation best taken up with an accountant. If the organization is set up as an LLC, with a tax status as a partnership taxation, the activity of th

It is a conversation best taken up with an accountant. If the organization is set up as an LLC, with a tax status as a partnership taxation, the activity of the organization is going to show up on the investor's taxes. Investors generally are not interested in seeing new tax items show up on their tax return, because of an investment. The tax details arrive on a form to the investor called a "K-1". Look up "IRS K-1" for background. Investors generally prefer capital gains, upon sale of the stock. And simple dividends, and perhaps interest income. Not a three-page list of items flowing from the startup's own activity scattered all over the investors tax return. Some investors, such as university endowments, and the like, also do not want the pass-through tax items from partnership tax treatment, and cannot make use of them either, since they are arms of the tax-exempt university, thus demand instead investments in C-Corp status entities. As for location of incorporation, many huge, and many smaller organizations incorporate in their home state. It's an entirely separate question and topic, not to be conflated with tax filing status.