Unrelated question: if we only consider tax laws, what's the best place in the world for startups to be? (The answer might be useful for startups that plan to bootstrap and don't mind hiring employees who telecommute.)
For bootstrapping, the main problem I found with taxation and incorporation is the bureaucratic overhead - it becomes the top idea in your mind for a time and distracts from building your product. So the trade off might be worth it.