Business Structure
The entity you choose on day one shapes your taxes, your fundraising options, your liability exposure, and your ability to offer equity. Most people pick wrong because they optimize for simplicity too early.
The core question
Are you building a lifestyle business or a company you intend to grow and potentially sell? A sole proprietorship or LLC works for consulting or small service businesses. If you are building a venture-backed startup, a Delaware C-Corp is almost always the right structure — not because it is cheapest, but because it is what the ecosystem expects.
| Structure | Liability Protection | VC Compatible | QSBS Eligible | Tax Treatment |
|---|---|---|---|---|
| Sole Prop | None | No | No | Pass-through, Schedule C |
| LLC | Yes | Generally no | No | Pass-through by default |
| S-Corp | Yes | No | No | Salary + distributions |
| C-Corp (DE) | Yes | Yes | Yes | Corporate 21% + personal on salary |
A note on impact businesses
This guide is written for founders building scalable, fundraising-backed companies. If you are building an impact business, this is not a critique — but the rules are distinctly different and worth flagging before you pick an entity.
We tend to lump every new venture under one word: startup. The label is useful shorthand, but it flattens real differences in how these businesses are built, funded, and judged. A venture-backed startup is engineered for outsized financial return. Investors deploy capital expecting a 10-100x exit, and the legal structure assumes it. The 1919 Dodge v. Ford ruling established that a corporation's purpose is to maximize financial gain for shareholders, and Delaware courts reaffirmed this in 2010 in eBay v. Newmark, holding that a non-financial mission inconsistent with maximizing economic value for stockholders runs against directors' fiduciary duties. That is the operating system of a standard C-corp, and it works well for the kind of company it was designed for.
An impact business is a different animal. The mission is part of the product. Profit funds the mission rather than defining it. Both can be excellent businesses. They are not the same business. The structural mismatch shows up at two predictable moments: the growth round, where new investors push toward conventional return expectations, and the exit, where directors face pressure to maximize shareholder value and the board's hands are legally tied.
The public benefit corporation (PBC) exists to solve this. A PBC expands fiduciary duty so directors are required to consider employees, customers, community, and environment alongside shareholders. It also gives founders the ability to consider factors other than the highest purchase offer at sale, working around the Revlon doctrine that normally forces a board to take the top bid. Patagonia, Kickstarter, and Anthropic all chose this path.
If impact is core to what you are building, the PBC structure protects that intent through the moments when standard corporate gravity would otherwise pull it apart. Filing at incorporation is straightforward. Converting later requires a two-thirds shareholder vote, dissenter's rights buyouts, and amended articles — and by then the cap table may make it expensive or impossible.
Two distinct categories, two distinct legal forms. Choose the one that matches what you are actually building.