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Incorporation can help many startups protect their assets while attracting new investors. There are three types of corporations, limited liability companies (LLC), S corporations, and C corporations. A startup entrepreneur might be tempted by the benefits of an LLC or S corporation because they are easy to form and manage. Setting up your startup as a C corporation can provide a lot of advantages. The following reasons will show why you should start a C corporation.
Unlimited Shareholders
A C corporation can have as many shareholders as it pleases, unlike S corporations or LLCs. This makes it very easy for new shareholders to join the company. It also means this is the only sort of corporation that can be effectively taken public. An LLC or an S corporation would both limit how large your company could eventually become. Only with a C corporation can you really see how far your startup can go. When you start a C corporation, your growth is unlimited.
Venture Capitalists
Venture capitalists will not invest in a startup that’s not a C corporation. They flat out can’t invest in S corporations, and most will not invest in LLCs. If your startup plans to rely on venture capital, you need to be organized as a C corporation. A C corporation also gives you more flexibility in negotiating deals with these investors. This can benefit you as well as the venture capitalists. You can work out your relationship to these outside figures in detail beforehand. C corporations are the only effective way to attract and work with venture capital.
Tax Advantages
C corporations enjoy a wide range of deductions and expenses in IRS taxes. In a C corporation, there is a change on what expenses are tax deductible. For example, most employee benefits can be deducted. This includes all medical expenses. The IRS also allows C corporations to accumulate money for expansion at a lower tax rate. The IRS will also less likely audit a C corporation over the other two options. By starting a C corporation, you’ll startup will enjoy all the tax benefits of a major company.
Perpetual Existence
Unlike the other two options, a C corporation can continue to exist as an entity as long as there are shareholders. This means if you or a partner wishes to leave the company, they can do so quickly and easily. Unlike other arrangements, the company won’t have to be reorganized. This also makes retirement and succession much easier. As a C corporation, your startup may continue to exist long after your death.
Corporation Credibility
Your startup will likely receive better treatment as a C corporation. Suppliers and lenders will know that you take the business side of your company seriously as a C corporation. It also conveys your serious commitment to other potential investors through investment banking. C corporations are the standard type of corporation in America. The biggest and most respected firms in the country are C corporations. Start a C corporation to inform everyone you mean to be treated the same.
Starting your startup as a C corporation will help make your business future secure. It will give you an outlet for unlimited growth. It will permit venture capitalists to enrich your startup. This entity type provides vast tax advantages. It guarantees your company will exist if it has money. It will increase your credibility in business circles. These benefits will set your startup on a strong foundation as a C corporation.
