What Kind of Business Structure Do Investors Prefer?

Establishing an LLC or corporation isn’t overly complicated and provides many advantages, especially where investment capital is concerned. The first step is to apply for a tax ID number. Which type of business structure is most attractive to investors?

The answer depends on what kind of investors you’re looking for, how much capital you require, and what portion of control over your company you and your investors want to retain. If you create an innovative software company, for example, you rely almost completely on investment capital until each project is complete.

Main Factors Investors Consider

Potential investors will look at three aspects of your business when evaluating risk versus reward:

  • Liability protection
  • Management control
  • Financial stability

An essential step is to separate your personal finances from your company by applying for an employer identification number.

Pros and Cons of LLCs for Investors

An LLC is a self-contained unit that provides liability protection for each member. There are no limits to how many members LLCs can have, and getting an EIN is very easy.

  • Pass-through tax liability avoids double taxation
  • Members share in profits and losses without personal accountability

LLCs are attractive for people interested in partnering in your company long-term. Venture capitalists and other investors might hesitate to get involved because there are no safeguards keeping endless members from joining.

How Venture Capitalists View C-Corporations

C-corporations also provides liability protection to shareholders, directors, and investors. The advantage of C-corporations is the ability to offer both common shares and controlling shares. The public can purchase common shares and contribute capital, while principal partners with controlling shares still retain decision-making ability.

These guarantees make C-corporations a prime investment opportunity for venture capital firms.

Advantages of S-Corporations

S-Corporations are popular with startups wanting to avoid double taxation by passing profits and losses to your personal tax return. If you’re looking for public investment, filing for an S Corp EIN is a solid bet. Private investors dislike S-Corporations because they only offer one type of stock, so it’s harder to maintain a controlling stake.

Whatever business structure is optimal for your investment needs, contact our professional advisors for help applying for EIN.

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