Brad Feld

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What Structure Should I Use?

Mar 26, 2006
Category Management

I can’t seem to get away from the “what structure should I use to set up my business” questions.  Here’s another one that I recently got.

I am trying to help an entrepreneur set up a distributorship to take US made products (tools) to a large market in asia with a huge need. Start up costs are under $1 million (5-10 angels and insiders), with proceeds going to pay for initial inventory take downs, field sales and support, and minimal opex. We do not foresee a future liquidity event for return of capital but rather generation of cash consistent with a distributorship. Question: what is the best equity structure for this company?

Given my recent post on S-Corp’s vs. LLC’s I’d lean toward an S-Corp (assuming all the investors are US-based), but given the recent change in Section 265 of DCGL, I’d be very comfortable with an LLC.  In either case, avoid a C-Corp and the risk of double taxation given that the company will likely be paying out dividends to its shareholders.