Business Structure Decision & Setup Checklist ✅
Use this checklist to guide your entity choice and initial formation steps. This is not legal or tax advice.
Part 1: Decision Checklist
Use this flowchart to determine the best business structure for your startup:
Key Decision Factors:
- 💰 VC Funding: If seeking venture capital, C-Corp is the standard requirement
- 🎯 QSBS Benefits: Qualified Small Business Stock benefits require C-Corp structure
- 🔧 Bootstrapping: LLC offers simplicity and flexibility for self-funded businesses
- 📊 Complex Equity: Multiple stock classes and option plans need C-Corp framework
- 🌍 Foreign Ownership: Avoid S-Corp if non-US owners are involved
Verdict: If you answered YES to the first two questions, form a Delaware C-Corp. If you answered YES to the third, start with an LLC.
| Topic | LLC | C‑Corp (default “C”) | S‑Corp (a tax election) |
|---|---|---|---|
| Tax | Pass‑through by default (single‑member disregarded; multi‑member partnership). Members generally owe self‑employment tax on earned income. | Entity pays corporate income tax; dividends taxed to shareholders (double‑tax risk). | Pass‑through; owners must pay themselves reasonable compensation (payroll); distributions beyond salary generally not subject to SE tax. |
| Investors | Many funds avoid K‑1s and pass‑through ECI/UBTI. | Venture‑standard; can issue preferred stock/options. | Not VC‑friendly (100 shareholder cap, no entity/foreign owners, one class of stock). |
| QSBS | Not eligible. | Eligible if requirements met; more favorable for stock acquired after 7/4/2025. | Not eligible. |
| Equity | Units/profits interests; option‑like instruments are possible but less standard. | Common/preferred, options/RSUs; wide ecosystem support. | One class of economic stock (no preferred). |
| Compliance | Fewer formalities; 1065 + K‑1s (multi‑member) or Schedule C (single‑member). | Corporate formalities; Form 1120; more filings. | Corporate formalities; Form 1120‑S and K‑1s to owners. |
| Flexibility | Easy to admit/remove members (check agreement/state rules). | Strong for scaling and securities work. | Fragile—easy to blow S status if rules violated. |
Part 2: Formation Checklists 📄
Once you've decided, follow the appropriate steps below.
If you chose a Delaware C-Corp:
- File Certificate of Incorporation with the Delaware Secretary of State.
- Appoint initial directors and officers.
- Adopt corporate bylaws and initial board consents.
- Authorize common shares and an initial equity incentive (option) pool.
- Issue restricted founder stock with vesting schedules.
- CRITICAL: File Form 15620 (83(b) Election) with the IRS within 30 DAYS of receiving stock. Use the new online portal and keep proof of filing.
- Obtain an EIN from the IRS.
- Open a corporate bank account.
- Set up a cap table management platform.
- File for Foreign Qualification in the state(s) where you operate.
If you chose an LLC:
- File Articles of Organization with your chosen state.
- Appoint a registered agent.
- Draft and sign an Operating Agreement (this governs how your LLC runs).
- Obtain an EIN from the IRS (unless you are a single-member LLC with no employees).
- Open a business bank account and keep finances separate.
- Decide on tax classification. By default, you're a pass-through entity. You can elect to be taxed as an S-Corp (Form 2553) or C-Corp (Form 8832) if you meet the requirements.
