In contrast to a LLC, C-corp revenues will be "double taxed," first at the corporate level and then, at that point, at the individual shareholder level when distributions are made. Unlike LLCs, C-corps can't "pass through" losses or profits to a registered agent.
Also, as discussed above, C-corps have a lot more regulatory requirements they need to abide by to stay on favorable terms with their state of incorporation. Those regulations rely upon the state — but from holding regular board and shareholder meetings to taking nitty gritty board minutes, it's quite a lift. While this can also be a decent compelling function to ensure your business is overseen well, it will require material investments of time and cash.
While LLCs can be simpler to oversee and may provide some tax advantages to founders who need to exploit pass-through taxation, corporations also offer many benefits. We'll list a couple of scenarios where startups should fundamentally consider a C-corp beneath.
Benefits of a C-corp
Raising venture capital
For some startups, raising multiple rounds of venture capital will be necessary to develop at the rate, and to the size, they are focusing on. Generally speaking, venture funds and institutional investors will just invest in C-corps, making it a prerequisite for companies hoping to go that route. This is driven by a couple of principal factors, including how taxes are structured for C corp versus LLCs, says Anthony.
"Companies can bring investors into both LLCs and C-corps, but venture and institutional investors would rather not be important for a substance that passes through profits and losses. In the event that you're seeming to be a high-development company that raises multiple rounds from VCs, it will be a prerequisite to consolidate as, or convert to, a C-corp prior to tolerating that capital."
Joining a gas pedal or incubator program
Gas pedal and incubator programs focus on assisting startups with scaling through a mix of funding, mentorship, community, and introductions to investors or business partners. Similar to VCs, these programs have a high inclination for C-corps and regularly shy away from tolerating LLCs.
