Legal Entities for Startups

Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.

There are many entity types used in forming businesses.

Here are the key ones to consider for your startup:

LLC -- Limited Liability Company

Startups use this structure to protect themselves from liability.

It's issued by the state, which can vary the rules across the country.

It doesn't allow for issuing stock but rather ownership units.

S -- Corporation

This is an LLC that elects to defer paying taxes to the owner.

This provides a tax advantage but comes with a limitation on the number of members.

It should not be used for startups seeking to raise outside capital.

Delaware C Corp

This is the ideal legal entity for a startup as it provides the most protection of assets and limitations of liability.

The entity exists beyond the life of the founders.

It can have an unlimited number of shareholders.

The drawback is that there is double taxation.

First at the corporate level and then at the personal level.

The Delaware C is the best C Corp to use as it has substantial case law behind it in the event of litigation.

Consider these points in selecting the legal entity of your startup.

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let's go startup something today.

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