C corp v S corp


C

Chuck

I have been told that C corps are preferable to S corps.
I'm presenting that statement in the context of start-up businesses
interested in venture capital specifically, and am hoping to get some
feedback or direction by members here.
TIA
Charles
 
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A

Alan

I have been told that C corps are preferable to S corps.
I'm presenting that statement in the context of start-up businesses
interested in venture capital specifically, and am hoping to get some
feedback or direction by members here.
TIA
Charles
You really don't have a choice if you are going to seek venture capital.
A venture capitalist is going to want a piece of the business or a piece
at some future point. As such, you will need to have more than one class
of stock and/or a non-human shareholder (partnership or corporation or
LLC). S corporations may not have either. S corporations are also
limited to 100 shareholders.
 
S

Stuart A. Bronstein

Chuck said:
I have been told that C corps are preferable to S corps.
Sometimes one is preferable, sometimes the other is.
I'm presenting that statement in the context of start-up
businesses interested in venture capital specifically, and am
hoping to get some feedback or direction by members here.
As Alan notes, in a case like this it is unlikely an S-corp will be
allowed. Though depending on the situation it might be of tax
advantage for the investors to look into an LLC or limited
partnership instead.
 
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G

Gene E. Utterback, EA, RFC, ABA

Chuck said:
I have been told that C corps are preferable to S corps.
I'm presenting that statement in the context of start-up businesses
interested in venture capital specifically, and am hoping to get some
feedback or direction by members here.
TIA
Charles

Alan & Stu make interesting points. When selecting the type of entity you
need to consider several factors. In your case, a big issue is obtaining
venture capital. So it isn't a matter of law that will limit your options,
but rather your sources of funding.

If you have a venture capitalist in mind I would suggest that you speak with
them about their preference in choice of entity. If you make the wrong
choice now it could A) cause you to have to change entity type later. NOTE
that this can be expensive depending on your original choices; B) derail
your ability to get venture capital.

If you don't have a venture capitalist in mind I'd be tempted to form an
LLC, at least initially. As these are treated a partnerships for tax
purposes they are very flexible. This could be helpful if you need to
convert to a corporation later on.

The best thing you can do, though, is to talk to an accountant, or M&A
Attorney, in your area who is familiar with venture capitalists and seek
their recommendation.

Good luck,
Gene E. Utterback, EA, RFC, ABA
 

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