Hacker News Reader

This doesn't apply to startups, which are always set up as C corporations.

Most businesses are set up as S corp or LLC to avoid our broken corporate tax system/double taxation. The high corporate tax rate obviously encourages entrepreneurs to pass profits through to themselves rather than keep it in the business and grow the company.

View on HN

startups not always set up as C corporations--for instance, if you expect it to be several years before you reach any profitability (happens a lot in biotech), you set up as an LLC to flow losses through to investors for tax purposes. most of these convert to c-corps upon profitability or if there's going to be a major financing event.

This might be differet for unsophisticated investors, but I've never seen an experienced technology investor invest in anything other than a C corp.

In any case, investors don't want losses to flow through to them. They want losses carried forward to reduce the company's tax liabilty in the future.

Depends on the investor, especially if it's an angel group vs. fund. lots of angels want to receive the initial benefit of losses.

Reply on news.ycombinator.com