Starting from the initial stages, it is very important to identify the appropriate corporate layout required for the business. This should include tax and legal implementation. The chosen layout assures the success of decisions to be made in future, like raising capital or exiting from business.
To identify which layout is best for the business, consider the following four points −
● Liability limitations − For C Corps, S Corps, and LLCs, the entrepreneur’s personal liability is typically restricted to the amount invested and borrowed. There is unlimited liability for partners of the entrepreneurship.
● Startup losses − A S Corp or a LLC is referred as pass-through layout due to the tax liabilities and advantages of pass-through to the entrepreneurs’ personal tax return. Generally, one can write off initial costs like losses earned in personal tax return. In a C Corp, initial costs produce tax losses that can be utilized only at the business level and there is no future benefit if a new company has future tax profits.
● Double taxation − Basically, double taxation of total income is neglected for passthrough items, but not for C Corporations.
● Capital-raising plans − If an entrepreneur plans to take the entire entrepreneurship as public or fundraise through private equity, these plans may demand that the company is not a pass-through structure.