October 26, 2007

What is the best entity type to use for raising equity capital?

I routinely receive questions from entrepreneurs who are either on my telephone seminars, on my Webinars, or who just write in asking for help. I dedicate these blog entries to all entrepreneurs who are looking for capital, whether debt or equity, and need some assistance in succeeding with their efforts. I'd like to address a few questions that entrepreneurs send to me.

Question: What is the best entity type to use for raising equity capital?

Answer: Depending on the type of company that you're building and the reason that you're raising capital, you will want to carefully consider the entity type that you select. The type of entity that you select for your business is always a decision that should be made in concert with your attorney and your accountant, because there are always significant tax issues and other implications involved in this discussion.

If your goal is to create a business wherein you will largely control it and potentially sell it in the future to a third party, then an LLC or S corporation are generally the best for tax mitigation purposes. But if your goal is to raise capital so that you can take the company public, the public company will probably need to be a C corporation. There are very complex rules that govern the criteria surrounding this, so you'll want to be very careful to get good advice on this topic. And if this is a discussion that's over your head, don't worry, because, if you select one type and later decide that you want to move into a different entity type, a good attorney can help you make the switch over. But if possible, it's always better to get it right the first time to save costs and the headaches associated with such changes.

About Joel G. Block

Well known in the business community, Joel Block is a best selling author, speaker, and business strategist. Frequently a principal in his transactions, Joel has raised tens of millions of equity dollars for his ventures, which have included real estate syndications and privately held businesses.

Joel’s career is highlighted by the launch of a financial publishing company which he grew nationwide and later sold to the Los Angeles Times. More recently, Joel works with scientists, engineers, technologists and others to help them optimize their entrepreneurial opportunities. Would you like to get a private phone consultation with Joel? Visit www.joelblock.com/capital for details.

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