Blog post

C-Corp is the foundation investors trust. If you’re building a startup and hoping to raise outside capital, read this before you go any further. One of the fastest ways to get an investor to pass is this: you're not a C-Corp. It’s not personal, or even about your product, traction, or team. It’s your legal structure. Because serious investors, especially venture capitalists, accelerators, and equity crowdfunding platforms, don’t fund LLCs or S-Corps. They fund C-Corps.

The Hidden Signal You’re Sending
If you’re not set up right, you’re signaling one of two things: You don’t understand how venture financing works, or you’re not planning to scale. Either way, that “no thanks” from an investor? It was decided before they even opened your deck.

Why Do You Need a C-Corp for Your Startup?
In the U.S., many founders start out forming an LLC or an S-Corp because they’re simple, familiar, and flexible. But for startups looking to raise funding, those structures quickly become deal breakers. LLCs and S-Corps pass profits and losses directly to the owners' personal taxes. That means investors receive a K-1 form and are expected to account for your startup’s gains or losses on their tax return even if they haven’t received a payout. That’s a massive red flag to most investors.

What Makes a C-Corp the Right Structure?
A C-Corporation is a true corporate entity. It can issue multiple classes of shares (like common and preferred), offer employee stock options, and isn’t restricted by the number or type of shareholders. It’s governed by a board, with bylaws that make operations clear and professional. It’s the structure designed to scale. And most importantly: it’s the one that investors trust.

But What About Double Taxation?
That’s one of the most misunderstood objections in startup circles. While yes, C-Corps pay taxes on profits and shareholders pay taxes on dividends, profits can be reinvested into the business and used for R&D, hiring, product development, and marketing to reduce taxable income while fueling growth. C-Corps are taxed at a flat corporate rate (21%), which is often lower than the personal income tax rate. So that “double taxation” panic? It’s mostly a myth at early stages when most startups aren’t profitable anyway.

Investor Perks Under IRS Code 1244
Here’s something few founders know: C-Corps give investors tax protection. Under IRS Code Section 1244, investors can deduct losses, up to $50,000 ($100,000 if filing jointly), from their ordinary income if your company fails. StartupBuddy.net can help you with this. As I like to say, in kindergarten speak, it mean this: if someone invests in your startup and it doesn’t work out, they can claw back some of that loss from their taxes. That’s a huge incentive to invest, and a massive reason serious investors prefer this structure.

Delaware C-Corp
For decades, Delaware has been the gold standard for incorporation because of its business-friendly legal system and established corporate laws. While some investors are now open to alternatives like Nevada or Wyoming, the default expectation from most VCs, angels, and equity crowdfunding platforms is that your company is a Delaware C-Corp. They may ask your legal structure in the intake form, investor meeting, or onboarding process before you’re even allowed to pitch. It’s that fundamental.

Structure Signals Sophistication
Choosing the right structure is a credibility move. Setting up your startup as a Delaware C-Corp signals that you’re serious, prepared, and investor-ready. Anything else could leave you stuck in legal limbo, or worse, passed over without ever knowing why. It happens all the time, but it doesn't have to happen.

Need Help Making the Switch or Setting Up Properly?
At StartupBuddy.net, we help founders get investor-ready—legally, financially, and strategically. Don’t let your structure sabotage your funding. Need help? We can help you do the incorporation and all the due diligence requirements so you are investor-ready.

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If you're serious about raising venture capital, you need to be a Delaware C-Corp. It’s not just preferred—it’s expected

Mark Andreessen, a16z