Which business formation is best for attracting investors?

On Behalf of | May 28, 2021 | Business Law |

Many entrepreneurs have specific dreams for their future and the future of their business. They have an accelerated growth plan in mind that they plan to implement in growing their business to become the next big thing. 

An entrepreneur looking to scale their company to as big as it can get is likely to take on investors at some point. There is a business formation structure that can be ideal in helping you do that. 

Why most go-to business structures aren’t effective at attracting investors

Many entrepreneurs select a limited liability company (LLC) when first incorporating their business. One of the great motivators for doing so is that it affords them certain liability protections. These can shield their personal assets from creditors or lawsuits. 

Another great benefit associated with an LLC is that it offers pass-through taxation. Business owners can pass file their company’s taxes along with their personal ones. 

While the above-referenced assets make an LLC a great corporate entity structure option for individual business owners, these attributes may not overwhelmingly impress potential investors. 

Why a “C” corp may peak an investor’s interests

A “C” corp affords business owners similar personal liability protections that LLCs do. One area in which they diverge from LLCs, though, is their structure. 

“C” corps have a hierarchical structure that accounts for operational details and each owners’ stake in the business. What this means is that “C” corps have corporate officers and boards of directors. They also have shareholders. These attributes make “C” corps attractive to potential investors. They generally expect to receive an appointment to receive stock shares or an appointment to the board of directors in exchange for investing in your startup, though. 

Deciding what structure is right for your business

Sorting through the subtle differences between the many different corporate structures that exist can seem overwhelming. An attorney can help you hone in on which one may best help you achieve your short or long-term goals.