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This doesn't apply to startups, which are always set up as C corporations. Most businesses are set up as S corp or LLC to avoid our broken corporate tax system
by il 14y ago
This doesn't apply to startups, which are always set up as C corporations.
Most businesses are set up as S corp or LLC to avoid our broken corporate tax system/double taxation. The high corporate tax rate obviously encourages entrepreneurs to pass profits through to themselves rather than keep it in the business and grow the company.
- taylorwc 14y agostartups not always set up as C corporations--for instance, if you expect it to be several years before you reach any profitability (happens a lot in biotech), you set up as an LLC to flow losses through to investors for tax purposes. most of these convert to c-corps upon profitability or if there's going to be a major financing event.
- il 14y agoThis might be differet for unsophisticated investors, but I've never seen an experienced technology investor invest in anything other than a C corp. In any case, investors don't want losses to flow through to them. They want losses carried forward to reduce the company's tax liabilty in the future.
- taylorwc 14y agoDepends on the investor, especially if it's an angel group vs. fund. lots of angels want to receive the initial benefit of losses.