How to Structure Your Startup for Easier Funding (LLC, C-Corp, or S-Corp?)

If you’re planning to raise money for your startup, one of the first things you need to figure out is: How should I structure my business? This might seem boring, but trust me—it matters. Investors care. Taxes matter. And making the wrong move early on can slow down your growth later. So, in this blog, I’ll break down the three most common business structures—LLC, C-Corp, and S-Corp—and explain which one makes the most sense if you’re planning to raise capital. Let’s make this simple.

Why Your Business Structure Matters for Funding

Your legal structure determines how you’re taxed, how you can issue equity, and how investors view your company. If you plan to bootstrap and stay solo, an LLC might be fine. But if you’re pitching VCs or angels, the wrong setup could be a deal-breaker. So, before you apply for that seed round or accelerator program, let’s walk through the options.

Option 1: LLC (Limited Liability Company)

An LLC is the easiest and fastest business type to set up. It’s flexible, has low fees in most states, and separates your personal assets from your business.

Pros:

• Simple to form
• Fewer annual requirements
• Great for freelancers or small businesses
• Pass-through taxation (you pay taxes personally)

Cons for funding:

• Investors don’t like investing in LLCs
• You can’t issue stock
• Venture capital firms usually require a C-Corp structure

Recommended services to form an LLC:

 

 

 

 

An LLC is perfect for bootstrapping, testing your idea, or running a service-based business. But if you plan to raise funding, it’s not the best long-term play. Check out our state LLC guides on everything you need to know before setting up an LLC

State LLC Guides

 

Option 2: C-Corp (Most Investor-Friendly Structure)

This is the gold standard if you want to raise capital from investors.

C-Corps allows you to issue stock, create option pools, and attract institutional funding. Most VC firms only invest in C-Corps—specifically Delaware C-Corps—because they’re predictable and have investor protections built in.

Pros:

• Ideal for raising venture capital
• You can issue stock and bring in multiple investors
• Clear equity structure with cap tables
• Easier to grant stock options to team members
• Built for scale

Cons:

• Double taxation (the company pays taxes, and so do shareholders)
• More paperwork and compliance
• Annual reports and corporate formalities

Recommended services to form a C-Corp:

 

 

If you’re serious about raising funds, hiring a team, and scaling fast, C-Corp is the move, especially if you want to join a startup accelerator or talk to institutional investors.

Option 3: S-Corp (Great for Tax Savings, Not for Raising Money)

S-Corps are technically corporations, but they’re designed to give small business owners tax advantages. You avoid double taxation and pay yourself a salary + dividends.

Pros:

• Pass-through taxation (like an LLC)
• Can save on self-employment tax
• Great for profitable service-based businesses

Cons for funding:

• Limited to 100 shareholders
• All shareholders must be U.S. citizens or residents
• Can’t issue multiple classes of stock (bad for VCs)

Recommended service to form an S-Corp:

• Swyft Filings S-Corp 

S-Corp is best for small teams making consistent profits who want to save on taxes, not for startups planning to raise outside funding. Most investors avoid S-Corps for this reason.

So, Which Structure Is Best for Raising Funding?

Here’s the quick cheat sheet:

• LLC = Great for solo founders or bootstrapped businesses. Not great for raising money.
• S-Corp = Good for profitable small businesses who want tax savings. Not ideal for investors.
• C-Corp = Best choice if you want to raise money from VCs or angels. Especially a Delaware C-Corp.

If you’re still figuring things out, you can start as an LLC and then convert to a C-Corp later. That’s a common move and not too complicated, but if you already know you’re going to raise money, it’s smarter to start as a C-Corp from day one.

Extra Tip: Consider Forming in Delaware

Even if you don’t live in Delaware, it’s the most common state for C-Corp formations. Why?

• Business-friendly laws
• Courts that specialize in corporate law
• Required by many VCs and accelerators
• Easier to sell or go public in the future

You can still operate from your home state—you’ll just need to register as a foreign entity there.

Final Thoughts

If you’re building a startup and thinking about fundraising, your legal structure matters more than you think. It affects your taxes, your cap table, and how investors view your company. For most startups that want to raise outside capital, forming a Delaware C-Corp is the cleanest and safest path. It may take a little more time and paperwork up front, but it sets you up for future growth and avoids messy conversions later. If you’re unsure or need help, platforms like LegalZoom can help you form a Delaware C-Corp quickly.