<story><title>LLC vs. S-Corp vs. C-Corp</title><url>http://www.launchside.com/blog/llc-vs-s-corp-vs-c-corp/</url></story><parent_chain><item><author>molsongolden</author><text>I am sure the author of this article intended to help others make wise tax/entity formation decisions but many of the facts mentioned are just incorrect (tax rates and some general tax concepts). C-corps are fairly uncommon nowadays and for good reason You are almost always going to pay more tax in the C-corp and you will face built in gains issues when you realize this and decide to elect to be an S-corp.&lt;p&gt;The tone of the article seems to be slightly rushed and frustrated and leads me to wonder if the author just received unexpected news from his accountant.&lt;p&gt;One example:&lt;p&gt;Using 2013 tax rates and assuming that the taxpayer is single:&lt;p&gt;Individual Federal income tax on taxable income of $90,000 (ignoring personal deductions/exemptions/itemized deductions, etc..) that the example taxpayer in the article might have to pay if they were a 50% partner/member in an LLC:&lt;p&gt;Roughly $18,493 (less than 21%)&lt;p&gt;Corporate Federal income tax on $100,000 if you and your partner had a C-corp instead and took 40k salaries then left $100k in the company.&lt;p&gt;Roughly $22,250 (About 22%)&lt;p&gt;But then if you end up not spending that money because you made a boatload of cash the next year and want to take it out:&lt;p&gt;$3,337 (15% capital gains)&lt;p&gt;leading to a rough total of $25,587 (over 25.5%).&lt;p&gt;You might look at this example and say &quot;hey that&apos;s just a few %&quot; but as the income in question grows, so does the gap.&lt;p&gt;Edit: The real reason startups might end up as corporations is for the beneficial tax treatment investors can receive as holders of small business stock (1202, 1244).</text></item></parent_chain><comment><author>swampthing</author><text>&lt;i&gt;C-corps are fairly uncommon nowadays and for good reason&lt;/i&gt;&lt;p&gt;This is a bit misleading for people looking to start your typical startup (using PG&apos;s definition of &apos;startup&apos;).  All those startups you read about raising money - want to know how many of them are C-corps?  Just about 100%.&lt;p&gt;One thing that many people don&apos;t realize is that for many startups, those pass-through tax benefits of LLCs and S-corps are largely illusory, since they&apos;re not going to be profitable at that stage anyways.&lt;p&gt;Starting off as an LLC means you&apos;re going to introduce delay when you start raising money (unless you&apos;re really on top of things and convert in advance of fundraising), which introduces deal risk.&lt;p&gt;Yes, there is double taxation on income from C-corps, but most startup founders aren&apos;t in it for the salary / dividends, they&apos;re in it for the eventual acquisition / IPO (or these days, private market sales).  Gains for QSB stock held more than 5 years are now tax-free under Section 1202.&lt;p&gt;There&apos;s a whole bunch of reasons why companies end up as corporations - not just the QSB stuff.  Main street small businesses are often fine with LLCs or S-corps.  Startups (as defined by PG) should really talk with an experienced startup attorney before going the route of an LLC or S-corp.</text></comment>
<story><title>LLC vs. S-Corp vs. C-Corp</title><url>http://www.launchside.com/blog/llc-vs-s-corp-vs-c-corp/</url></story><parent_chain><item><author>molsongolden</author><text>I am sure the author of this article intended to help others make wise tax/entity formation decisions but many of the facts mentioned are just incorrect (tax rates and some general tax concepts). C-corps are fairly uncommon nowadays and for good reason You are almost always going to pay more tax in the C-corp and you will face built in gains issues when you realize this and decide to elect to be an S-corp.&lt;p&gt;The tone of the article seems to be slightly rushed and frustrated and leads me to wonder if the author just received unexpected news from his accountant.&lt;p&gt;One example:&lt;p&gt;Using 2013 tax rates and assuming that the taxpayer is single:&lt;p&gt;Individual Federal income tax on taxable income of $90,000 (ignoring personal deductions/exemptions/itemized deductions, etc..) that the example taxpayer in the article might have to pay if they were a 50% partner/member in an LLC:&lt;p&gt;Roughly $18,493 (less than 21%)&lt;p&gt;Corporate Federal income tax on $100,000 if you and your partner had a C-corp instead and took 40k salaries then left $100k in the company.&lt;p&gt;Roughly $22,250 (About 22%)&lt;p&gt;But then if you end up not spending that money because you made a boatload of cash the next year and want to take it out:&lt;p&gt;$3,337 (15% capital gains)&lt;p&gt;leading to a rough total of $25,587 (over 25.5%).&lt;p&gt;You might look at this example and say &quot;hey that&apos;s just a few %&quot; but as the income in question grows, so does the gap.&lt;p&gt;Edit: The real reason startups might end up as corporations is for the beneficial tax treatment investors can receive as holders of small business stock (1202, 1244).</text></item></parent_chain><comment><author>berberous</author><text>I&apos;ve heard leading lawyers at the Silicon Valley firms recommend that any start-up seriously seeking VC funding choose a Delaware C-Corp.&lt;p&gt;The main reason being that investors do not want to deal with the pass-through income associated with an LLC or S-Corp.&lt;p&gt;(Of course, this is not legal advice, and you should speak to your lawyer.)</text></comment>