What is best for a startup company: S-, C-Corp or LLC?

If you wish to have a VC invest in your business, C-Corp is the way to go. While Mr. O’Brien’s answer is correct as far as it goes, there are a few more things I’d like to point out. The reason that VCs prefer C Corps to S Corps and LLCs is twofold. S-Corps cannot have shareholders who are corporations, partnerships, or non-US persons. Most, if not all, VC funds are organized as partnerships or partnership-like organizations. With regard to VCs investing in LLCs, the problem lies in tax law. While a partnership may own interests in another LLC, if the VC fund has investors who are tax-exempt or foreign, investing in an LLC can have serious tax consequences. The VC fund’s partnership agreement may limit its ability to make investments that generate unrelated business taxable income for the tax-exempt investors or income that’s effectively connected with a U.S. trade or business for the foreign investors. Both of these types of income will knock out the investors tax-exempt status. The VC may also prefer investments in C corporations to avoid pass-through tax reporting. If you’d like any further guidance with this issue, please do not hesitate to contact me.