What Legal Structure Is Best for Your Startup?

Choosing the right legal structure affects your startup’s taxes, liability, and fundraising options. It’s one of the first big decisions with long-term impact, so it’s critical to get right.

Why it Matters

Before you raise money or build product, you need a business entity. Your legal structure affects taxes, ownership, liability, and investor eligibility. Pick wrong, and you might have to redo everything later.

Founders Checklist

Choose the right legal entity: C Corp, S Corp, or LLC
Decide where to incorporate (usually Delaware)
File your formation docs with the state
Get an EIN from the IRS
Draft your internal governance docs (bylaws, board consent, etc.)
Open a business bank account — never co-mingle funds

Founder Fails

Started as an LLC → had to convert before raising
Registered in home state instead of Delaware → higher costs later
Didn’t file bylaws → complications opening a bank account

When to ask for Help

You’re unsure if your business model is VC-compatible.
You’re considering an LLC for short-term simplicity.
You have co-founders in different countries or states.
You’re bootstrapping now but may raise funding later.
You want to understand tax or liability implications based on your location.

Frequently Asked Questions

Q: C Corp, S Corp, or LLC — what’s best for a startup?
A: For venture-backed startups, Delaware C Corp is the gold standard. LLCs are flexible but not investor-friendly. S Corps have tax advantages, but too many restrictions.

Q: Why do investors prefer C Corps?
A: Simpler equity structure, standardized legal docs, and qualified small business stock (QSBS) tax benefits.

Q: Can I convert later?
A: Yes, but it’s a hassle. Better to start with the right structure upfront if you’re planning to raise outside capital.