The choice between LLC and C-Corporation (typically Delaware C-corp) is the formation decision that determines whether a startup can raise venture capital. The decision also shapes how the company is taxed, what equity it can issue to employees, what investor-related tax benefits (like QSBS) are available, and how much administrative overhead it carries. It is one of the most-frequently-misunderstood decisions, with founders defaulting to LLC for simplicity without modeling the conversion cost if venture fundraising becomes a path.
The decision-driving comparison:
| Dimension | LLC | C-Corp |
|---|---|---|
| Federal taxation | Pass-through (profits/losses to members' personal returns) | Entity-level (corporation pays tax, dividends taxed again at ... |