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I’m chuckling as I write this. After writing a few posts on S-Corps, C-Corps, and LLC’s, I had an email exchange today with someone that is putting together a small angel round. He read my posts and concluded that he should do a C-Corp. He’s only planning to raise a small angel round now and a follow-on angel round in a year – no VC, no significant financing, and no complex capitalization. In addition, if the business is successful, it’ll start generating profits and positive cash flow in year 3.
In this case, a C-Corp makes no sense, especially because of the risk of double-taxation if the business becomes profitable. An S-Corp is fine, but the company potentially has a foreign investor as one of its angel investors. In addition, the company is already an LLC, so converting to an S-Corp would be a pain. Since the entrepreneur has no plans to raise money from VCs, the answer – in this case – was to stay as an LLC.
See – it depends. Snicker.