I plan to use my recent crowdfunding capital as a first step in building a company and am interested in pursuing equity funding in the future. What type of company should I create?

If you plan to use the crowdfunding you received as a stepping stone towards future funding, it may be best to incorporate as a C-Corporation.

A C-Corporation is a traditional corporate structure that has no limits on the number of shareholders it can have. This means that if you plan to raise venture funding down the road, or have hopes of building a company that will offer an IPO or seek to be acquired by a larger company, this structure is most advantageous for your company’s long-term goals.

It’s not uncommon to start out as an LLC and only when it becomes time to raise money to convert to a C corp.

There are, however, some downsides to forming a C-Corporation. First, because a C-corporation is a traditional corporate entity, you will be taxed twice on your profits and losses: once at the corporate level, and once at the individual level. For a smaller business, this can become more complicated than it is worth. Additionally, when initially filing your company’s incorporating documents, you will need to be more mindful of the number of shares you are authorizing.

A number of these characterizations may require more care in the initial formation of the company and it is probably best to consult with a lawyer if you are contemplating creating a C-Corporation.

While your project may be small now, if you have big goals for your new company, it would be best to consult an attorney about the additional requirements , costs and benefits necessary for creating a C-Corporation.

Kickstarter and taxes — a guide for your accountant.

The foregoing is not intended to be, and should not be construed to be, tax advice. This website offers general answers to general questions based on information obtained from www.irs.gov and other publicly available information. Collaborative Fund cannot be held responsible for the results of any position taken on a tax return by any user of this site. Users should always obtain independent tax advice from a qualified tax professional to determine the tax consequences applicable to such user’s personal situation.