Choosing a startup corporate structure is paramount to your business.
So, last time we discussed how to invest in a startup. But what if you have an idea planted in your brain for the next startup? What if you truly believe your idea could change the landscape of the digital world? Do you have the next Uber or Pokemon Go? Or one of these? If you’ve been thinking about it there’s no time like the present!
While you may the idea, the cool industrial space with a basketball court inside, and a team as hungry to rise to the top as you are one question remains—what corporate structure will you use to frame your business? There are three dominant options for fledgling startups each with their own pros and cons.
- LLC: This is a very popular corporate structure that is easy to set up. Furthermore, as an LLC isn’t taxed as entity. As a startup you will likely be losing money. Why not use your loss to your advantage? If you have no personal income, the IRS gives you two choices. You can roll your loss forward and use it to offset future income, or you can go back through the last three years of tax returns and apply the loss retroactively. That reduces your adjusted gross income, often leading to a refund. It can be quite beneficial in some circumstances.The downside? LLCs don’t allow for outside investors. It is probably the ‘safest’ startup corporate structure.
- C Corp: You are a corporation and therefore receive maximum protection of your assets. Yet as a corporation have to answer to shareholders and to a board. Yet you will be able to take investments and the board will not directly control every aspect of your business. A C-Corp entity is also well established. There are no surprises as far as legality is concerned.
- S Corp: like the LLC, S-Corp is a pass-through entity for federal taxes. Basically, that means that the taxable profits or losses for the business are passed through to the business owners, who record these as part of their personal tax filings. Downside? Ongoing fees and closer IRS scrutiny.
It might be difficult to navigate to decide which framework is best for your startup corporate structure. All facets of your business will be effected by which structure you choose. Terry Kine can help you decide which structure is best for your business and handle any legal matters.