Why should you incorporate your startup?
One of the first crucial decisions you’ll make as a founder is choosing the right business structure. Your long-term plan for the company, along with how you plan to fund it, take out dividends, and report taxes, will all drastically impact the corporate structure you should choose. While changing your startup's incorporation structure is possible, it will create large headaches and bills and is generally not advisable as a strategy. The main benefits of incorporating your startup are:
Compliance: Maintain compliance with local and federal law
Tax benefits: Save money by accessing business deductions and flexible tax treatments that are not available to individuals
Fundraising: Enable angels, VCs, and other parties to invest in your startup through a variety of methods
Protect your assets: Shield your savings and personal property from business liabilities
Professional credibility: Signal legitimacy to investors, partners, and customers
Choosing your structure
LLC (Limited Liability Company)
Best for: Bootstrapped startups, consulting firms, small teams
✅ Simple setup and maintenance
✅ Pass-through taxation
✅ Flexible management structure
❌ Generally not able to raise money from VCs
❌ Limited stock options
C-Corporation
Best for: Startups seeking VC funding, QSBS incentives, future-proofed growth
✅ Unlimited investors allowed
✅ Preferred by VCs and angels
✅ Significant tax savings available via QSBS, 83b election, and more
✅ Easy stock issuance
❌ Double taxation
❌ More complex compliance
S-Corporation
Best for: Small teams wanting corporate benefits with simpler taxes
✅ Pass-through taxation
✅ Self-employment tax savings
✅ Corporate structure
❌ Limited to 100 shareholders
❌ US residents only
TLDR:
Spend the time to properly incorporate your startup. What it costs today will be far cheaper than the legal troubles and headaches later.
Bootstrapping? Start with an LLC
Ever plan to raise VC money? Go C-Corp
Small but formal? Consider S-Corp