October 14, 2026
For most startups that plan to raise money from angels or venture funds, the right structure is a Delaware C corporation. An LLC fits a business you’ll fund yourself and run for profit, a public benefit corporation fits a venture-track company that wants its mission written into its charter, and a nonprofit fits an organization funded by donations and grants that no one will own. An S corp isn’t a separate entity. It’s a tax election an LLC or corporation can make, with strict limits that rule it out for venture-backed companies.
Key takeaways
Start with three questions:
| C corp | LLC | LLC or corp with S election | Public benefit corp | |
|---|---|---|---|---|
| Venture capital | Standard | Rarely | No | Yes, though some investors ask more questions |
| Personal liability protection | Yes | Yes | Yes | Yes |
| Federal tax | Company pays tax; dividends taxed again | Passes through to owners | Passes through to owners | Same as C corp |
| Equity for employees | Stock options and restricted stock | Profits interests | Restricted to one class of stock | Stock options and restricted stock |
| QSBS eligible | Yes, if requirements are met | Not while taxed as a partnership | No | Yes, if requirements are met |
| Ownership limits | None | None | 100 holders, generally US individuals only | None |
| Extra obligations | Board, officers, Delaware franchise tax | Operating agreement | Payroll for owner-employees, eligibility rules | Balance stakeholders; report on the public benefit to stockholders every two years |
Because venture funds can’t easily invest in anything else. Their own investors include pension funds, endowments and non-US investors who can’t take pass-through income, the standard financing documents are written for corporations, and corporations can issue the preferred stock and stock options every round depends on. Only C corp stock can qualify as qualified small business stock (QSBS), which can exclude gain on a sale from federal tax. Congress expanded those rules in July 2025. Whether your stock qualifies is a question for your tax advisor. See Why Do VCs Require a Delaware C Corp? and C Corp vs LLC.
“Double taxation” rarely matters to a startup. The second layer of tax applies to dividends, and startups reinvest their money rather than pay dividends.
When you’re building a business you’ll fund yourself and keep, such as a services firm, an agency or a profitable niche product. An LLC gives you liability protection, pass-through taxation and a flexible operating agreement with fewer formalities. Its drawbacks show up when you want outside investors or want to give employees equity: venture funds rarely invest in LLCs, and profits interests are less familiar to hires than stock options.
An S corp is a federal tax election, not a type of company. An LLC or a corporation can elect it. It keeps pass-through taxation and can change how owners who work in the business are taxed, which is why some profitable owner-run businesses use it. Its limits rule it out for venture-track startups: no more than 100 stockholders, generally only US individuals, one class of stock (so no preferred stock), and S corp stock never qualifies for QSBS. Talk to your tax advisor before electing. See S Corp vs LLC and S Corp vs C Corp.
A public benefit corporation is a for-profit corporation whose charter names a specific public benefit. Its directors must balance stockholders’ financial interests, the people affected by the company’s conduct, and that stated benefit. In Delaware, a PBC must report to its stockholders on its public benefit at least every two years. Delaware has allowed PBCs since 2013, and venture-backed and public companies use the form.
Choose a PBC if you want the mission written into the company’s legal structure, so that it guides the board through financings and a sale. Many venture investors are comfortable with PBCs, but some will ask how the structure affects an exit. A regular C corp can pursue a mission too. It just doesn’t have the charter-level commitment. See our Founder Guide to Public Benefit Corporations.
Only if the organization will be funded by donations and grants and no one will own it. A nonprofit can’t issue stock or give anyone equity, its assets are permanently dedicated to its charitable purpose, and tax-exempt status requires a separate application to the IRS. If you want to do good and also build value you own, a PBC or a C corp with a mission is usually the better fit.
Then the law has already picked a structure for you. Two or more people building a business together for profit are likely a general partnership, even with nothing in writing, and each partner can be personally liable for the business’s debts, including debts another partner took on. A solo founder is a sole proprietor, with the same personal exposure. Every structure in the table above protects your personal assets, which is one reason to form an entity before you sign contracts, hire or take anyone’s money.
Usually, but it’s never free. An LLC can convert to a corporation under Delaware law and most other states’ laws, often without tax, though confirm that with your tax advisor. The QSBS holding period starts only at conversion, and investors will want the conversion done before they close. A C corp can become a PBC by amending its charter with board and stockholder approval. Converting a corporation back into an LLC is generally a taxable event and rarely makes sense. See LLC Conversion to Corporation.
For timing, see When Should I Incorporate My Startup? and Where Should I Incorporate My Startup? If you’re ready to form a company, see our Corporation Startup Package or contact us.
