What’s the best structure when seeking funding from VCs?

Actually, when we launched our business we asked ourselves the same question. Simply stated, C Corporations are the best option for any entrepreneur seeking funding from angel investors or venture capitalists.

From an administrative perspective, when entrepreneurs need to raise multiple rounds of funding via angels and VCs, they will need to issue several classes of common and preferred stock–and that is best managed in a C Corporation. Moreover, if you have any intention of issuing employee stock options at some point, incorporating as a C Corporation is your best bet.

Another point to note is that most angels and VCs prefer–and sometimes can only–invest in C Corporations. This is due to a few reasons. For starters, the pass-through (income/expenses) features of, let’s say, an LLC, are not desirable to VCs because it creates unrelated business taxable income (UBTI) and can cause their foreign limited partners to file a U.S. tax return.

Read full article…