One of the first steps in creating a successful company is choosing the legal structure that will best suit the needs of the business and its owners.
Deciding which structure is best depends on three key factors:
- limited liability of owners
|Corporations||are the most frequently utilized formation vehicle, particularly for companies that anticipate seeking venture financing.|
|LLCs||are pass-through entities that are not subject to a separate level of tax and can provide founders with lots of flexibility when it comes to governance issues. On the other hand, LLCs are often more complex, which means higher initial costs, and certain venture capital funds are hesitant to invest in LLCs because of tax considerations and the aforementioned complexity.|
|Subchapter “S”||corporations offer pass-through treatment like an LLC if certain requirements are met.|
Additionally, if a principal purpose of your start-up is to provide a material positive impact on society and the environment, then you may wish to form a Benefit Corporation, which is generally subject to the same corporate laws as other corporations but differs in terms of purpose, accountability and transparency.