When you’re starting a business, choosing a legal structure can feel like checking a box. But it’s more than paperwork—it shapes how you’re taxed, how you raise money, and how your equity works.

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And if you pick wrong early on, it can be painful (and expensive) to fix later.
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Here’s a no-fluff breakdown of the most common structures—and which one makes sense depending on where your startup is headed.
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🏷 LLC: Flexible, Simple, and Great for Staying Scrappy
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An LLC (Limited Liability Company) is the default choice for many early-stage founders—and for good reason. It’s fast to set up, easy to manage, and doesn’t have the same formalities as a corporation.

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✅ Pros:

• Pass-through taxation (you pay tax on profits via your personal return)
• Fewer corporate formalities (no required board meetings or minutes)
• Flexible ownership structure
• No required salary or payroll setup for founders

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🚫 Cons:

• Harder to raise venture capital (VCs don’t invest in LLCs)
• You pay self-employment tax on all income
• Equity compensation (like options) is tricky

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Best for: Founders bootstrapping, running a services business, or not planning to raise VC money.
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🏛 C Corp: The Venture Capital Standard
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If you’re planning to raise outside capital—especially from angel investors or VCs—C Corp is the standard, full stop. Most investors won’t touch LLCs or S Corps.

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✅ Pros:

• Easy to issue stock and options
• Eligible for QSBS (Qualified Small Business Stock) 100% capital gains exemption
• Investors are familiar with it—especially Delaware C Corps

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🚫 Cons:

• Double taxation (profits are taxed at the corporate level, then again if distributed as dividends)
• More formal admin requirements (board meetings, bylaws, etc.)
• Founders working in the business are expected to pay themselves a reasonable salary once the company can afford it

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Best for: Founders planning to raise VC, issue employee equity, and scale a high-growth startup.
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📄 S Corp: A Hybrid That Works for Certain Founders
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S Corps are technically corporations, but taxed like partnerships. You get the liability protection of a corporation with pass-through taxation—but they come with some limitations.

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✅ Pros:

• Avoid double taxation
• Can reduce self-employment tax by splitting salary and distributions

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🚫 Cons:

• Strict ownership rules (max 100 shareholders, U.S. citizens only, no VCs or other entities)
• Only one class of stock allowed
• Not ideal for startups raising outside capital
• Founders must pay themselves a reasonable salary through payroll before taking any profit distributions

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Best for: Profitable small businesses with a stable ownership group looking for tax efficiency—not ideal for venture-backed startups.
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📌 LLC Now, C Corp Later? It’s Possible—but Not Always Clean
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A lot of founders start as LLCs and convert to C Corps later when it’s time to raise. That’s doable—but it’s not always seamless. Depending on how your books and equity are structured, you might hit tax or legal friction.

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The earlier you know your direction, the better.
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TL;DR: Structure Your Startup to Match Your Goals
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• Staying lean, solo, and profitable? LLC might be perfect.
• Looking for tax efficiency without raising capital? S Corp could work.
• Building something big, raising money, and scaling fast? C Corp is your best friend.

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And whatever you choose—make sure you understand when and how to pay yourself legally and efficiently.

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Need help setting up or cleaning up your structure? We help early-stage founders get it right from day one—clean, compliant, and ready to scale.