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The Founder's Guide to Business Structures for Online Capital Raising
Whether you're gearing up for your seed round or eyeing an IPO, choosing the right business structure is critical for fundraising success. Join the founders who've raised over $2 billion with DealMaker's comprehensive approach to capital formation.
Risk Disclosure: This guide provides general information and should not be construed as legal, tax, or investment advice. Always consult with qualified professionals regarding your specific situation.
Table of Contents
What is Raising Capital Online?C-Corporations: The Gold Standard for Scalable FundraisingLimited Liability Companies (LLCs): When Flexibility Matters MostS-Corporations: Limited Application for Online Capital FormationChoosing the Right Structure for Your Regulation PathHow DealMaker Supports Your Capital Raising JourneyMaking Your Decision: A Practical FrameworkThe Conversion Decision: When and How to Change StructuresFuture-Proofing Your Structure: Strategic ConsiderationsThe Conversion Decision: When and How to Change StructuresConclusion: Making an Informed Decision
What is Raising Capital Online?
Online capital raising represents a fundamental shift in how companies access investment funding. Instead of relying solely on traditional venture capital or private networks, companies can now leverage digital platforms to reach broader investor audiences through various regulatory frameworks including Regulation CF, Regulation A+, and Regulation D offerings.
This digital transformation has democratized investment opportunities, allowing retail investors to participate in private capital markets while giving companies more control over their fundraising process. The success of this approach depends heavily on having the right business structure in place from the start.
As a founder, few decisions will impact your capital raising journey more than your choice of business structure. While you're focused on building your product and growing your customer base, the entity you select now will shape everything from how many investors you can bring on board to your tax obligations and even your exit options.
Many founders have discovered that they wished they had given more thought to their business structure before diving into online capital raising. The right structure creates a clear path forward, while the wrong one can create expensive roadblocks just when you need momentum most.
This guide will walk you through the practical realities of each business structure specifically through the lens of raising capital online. We'll explore the pros and cons of C-Corporations, LLCs, and S-Corporations, and provide clear guidance on which structures work best for different types of fundraising.
DealMaker Insight
While your immediate focus might be on product development or market fit, your business structure determines the ceiling of your fundraising potential. Choose carefully—your entity type influences everything from investor interest to your exit strategy.
C-Corporations: The Gold Standard for Scalable Fundraising
Why C-Corps Win for Most Growth-Focused Founders
If you're planning to raise significant capital and scale quickly, a C-Corporation likely deserves your serious consideration. C-Corps have become the go-to structure for founders with ambitious growth plans, and for good reason.
The primary advantages that make C-Corporations ideal for online capital raising include:
✓ Unlimited Investor Capacity
Unlike other structures, C-Corps can accommodate an unlimited number of shareholders without triggering additional regulatory requirements. This is particularly valuable when raising from many smaller investors through platforms like DealMaker.
✓ Familiar Structure for Investors
Investors – from angels to VCs to retail participants – understand and expect the C-Corp structure. Using a familiar entity reduces friction in your fundraising process and builds immediate credibility.
✓ Flexible Share Classes
Want to offer different rights to different investor groups? C-Corps allow you to create various share classes (common, preferred, etc.) with different voting rights, liquidation preferences, and dividend structures. This flexibility is invaluable as your capital needs evolve.
✓ Clear Governance Framework
The established board structure of C-Corps provides clear governance mechanisms that sophisticated investors expect. This becomes increasingly important as you add investment partners and grow your company.
✓ Tax Structure Separation
The separation between business and shareholder taxation gives both you and your investors cleaner tax situations, even though it means navigating corporate taxes.
$2B+
Raised by companies using DealMaker's platform
1.5M+
Investments processed through our platform
900+
Successful offerings completed
Success Story: EnergyX
EnergyX made history by becoming the first cleantech company to raise the full $75 million Reg A+ maximum in a 12-month period. Their strategic use of a C-Corporation structure enabled them to attract over 40,000 investors while maintaining complete control over their brand experience.
Learn more about their strategy →Limited Liability Companies (LLCs): When Flexibility Matters Most
Understanding the LLC Advantage for Specific Scenarios
While C-Corps may be the standard for high-growth ventures, LLCs offer unique advantages that make them the right choice for certain business models and fundraising strategies.
LLCs shine in these specific scenarios:
✓ Real Estate Ventures and Project-Based Businesses
If you're raising capital for real estate investments or specific projects with defined timelines, the LLC structure offers significant tax advantages through pass-through taxation and the ability to distribute profits efficiently.
✓ Family Businesses and Closely Held Companies
When keeping ownership within a smaller, defined group is a priority, LLCs provide the governance flexibility to create custom management structures while still raising capital from select outside investors.
✓ Early-Stage Bootstrapping with Tax Loss Advantages
For founders in the earliest stages who expect initial losses, an LLC allows those losses to pass through to your personal taxes, potentially offsetting other income while you build toward profitability.
S-Corporations: Limited Application for Online Capital Formation
Understanding S-Corporation Constraints
S-Corporations, while offering tax benefits similar to LLCs, present significant restrictions that make them generally unsuitable for substantial online capital raising:
1. 100-Shareholder Limit
S-Corps cannot have more than 100 shareholders – a severe limitation when raising capital online, where investor numbers often reach into the hundreds or thousands.
2. Single Share Class Restriction
S-Corps can issue only one class of stock, eliminating the possibility of creating preferred shares with different rights or privileges – a common requirement for sophisticated investors.
3. Shareholder Qualifications
All S-Corp shareholders must be U.S. citizens or residents, certain trusts, or certain tax-exempt organizations. This excludes foreign investors and most business entities from your potential investor pool.
Choosing the Right Structure for Your Regulation Path
For Regulation Crowdfunding (Reg CF) Offerings (Up to $5M)
Regulation Crowdfunding has democratized startup investing by allowing companies to raise up to $5 million from everyday investors. Your business structure significantly impacts the efficiency of a Reg CF raise.
C-Corporation Advantages for Reg CF:
Accommodates the large number of smaller investors typical in crowdfunding
Provides standardized documentation familiar to funding portals
Accommodates the large number of smaller investors typical in crowdfunding
Accommodates the large number of smaller investors typical in crowdfunding
LLC Considerations for Reg CF:
Can work for smaller raises with fewer investors
May require complex operating agreement amendments as investor numbers grow
Creates K-1 tax form requirements that may confuse retail investors
Often requires more extensive legal support to structure properly
Learn more about optimizing your Reg CF strategy in our Ultimate Guide to Regulation Crowdfunding and How to Prepare for a Successful Reg CF Offering.
For Regulation For Regulation A+ (Reg A) Offerings (Up to $75M) (Reg CF) Offerings (Up to $5M)
Regulation A+ allows companies to raise up to $75 million through a mini-IPO process that requires SEC qualification. At this scale, your business structure becomes even more critical.
C-Corporation Advantages for Reg A+:
Supports the substantial investor base needed for larger raises
Facilitates compliance with blue sky laws across multiple states
Provides the governance framework appropriate for larger capital raises
Creates clearer paths to secondary market trading and liquidity
Aligns with investor expectations for companies at this funding stage
LLC Challenges for Reg A+:
Administrative complexity increases exponentially with larger investor numbers
Secondary market trading limitations can restrict investor liquidity
More complicated SEC reporting requirements compared to corporations
Potential investor resistance due to unfamiliar structure
For a deeper dive into Reg A+ strategy, see our Ultimate Guide to Regulation A+.
For Regulation D (Reg D) Offerings (Unlimited Amount)
Regulation D exemptions allow companies to raise unlimited amounts from accredited investors. These sophisticated investors often have clear preferences regarding business structures.
C-Corporation Advantages for Reg D:
Strongly preferred by venture capital and institutional investors
Facilitates standardized investment terms (SAFEs, convertible notes, preferred equity)
Supports complex security structures needed for larger investments
Enables clear exit strategies through acquisition or public markets
Creates cleaner tax situations for investment funds and family offices
LLC Strategic Applications for Reg D:
Can be advantageous for real estate or project-based investments
Works well for special purpose vehicles (SPVs) for specific assets
Offers tax benefits for certain investment structures
May be preferred for smaller, targeted investor groups
Explore our Definitive Guide to Regulation D for comprehensive insights on Reg D strategies.
How DealMaker Supports Your Capital Raising Journey
Our comprehensive platform streamlines the capital raising process regardless of your business structure.
Streamlined Compliance
Automated KYC/AML with industry-leading 99% pass rates
Real-Time Analytics
Monitor investor behavior and optimize marketing efforts with actionable data
Seamless Payments
Accept investments through wire transfers, ACH, credit cards, and more
Making Your Decision: A Practical Framework
Four Key Questions to Guide Your Structure Selection
Choosing the right business structure doesn't have to be overwhelming. Consider these essential questions:
1. How many investors do you anticipate?
- 1
Fewer than 50: All structures remain viable
- 2
50-100: Consider C-Corp or LLC with conversion plan
- 3
100+: C-Corporation strongly recommended
2. What's your growth and funding trajectory?
- 1
Multiple funding rounds planned: C-Corporation recommended
- 2
Single, targeted raise: LLC may be sufficient
- 3
Slow growth with limited capital needs: S-Corporation could work
3. What type of investors are you targeting?
- 1
Institutional investors/VCs: C-Corporation strongly preferred
- 2
High-net-worth individuals: All structures viable
- 3
Retail investors: C-Corporation offers simplest experience
- 4
Industry-specific investors: May have structure preferences
4. What's your expected timeline to exit or profitability?
- 1
Near-term profitability with distributions: LLC may offer advantages
- 2
Long-term growth toward acquisition: C-Corporation typically preferred
- 3
Public market aspirations: C-Corporation essential
Remember, your choice isn't just about today's raise—it's about creating a foundation that supports your entire growth journey.
The Formation Process: Setting Up for Success
Essential Documentation for Online Capital Raising
Regardless of which structure you choose, proper documentation demonstrates professionalism and readiness to investors. Let's walk through exactly what you need, where to file it, and who should handle each step.
For C-Corporations:
1. Certificate of Incorporation
Where to file: Delaware Division of Corporations website (https://corp.delaware.gov/) or your state's Secretary of State office
Who handles it: Typically prepared by an attorney, though some founders use incorporation services like Stripe Atlas, Clerky, or LegalZoom
Timeline: 1-3 business days for standard filing in Delaware; expedited 24-hour and same-day service available for additional fees
Cost: $89 minimum Delaware filing fee plus franchise tax ($175 minimum annually); costs vary in other states
Key details: Include your authorized share count (recommend 10M+ common shares), par value (typically $0.00001), and company name with a corporate identifier (Inc., Corporation, etc.)
2. Comprehensive Bylaws
Who creates them: Your corporate attorney prepares these; standard templates exist but should be customized
Key sections: Include board composition, voting requirements, officer roles, meeting procedures, and stock issuance protocols
Importance: While not filed publicly, bylaws are essential for investor due diligence and proper governance
Common mistake: Using generic templates without adapting them to your specific governance needs
3. Initial Board Resolutions
Who prepares: Corporate attorney or corporate secretary
Format: Formal written consents signed by all initial directors
Critical actions to include: Adoption of bylaws, appointment of officers, approval of stock issuance, banking authorizations, and fiscal year determination
Storage: Keep in your corporate record book (physical or digital) for investor due diligence
4. Stock Purchase Agreements for Founders
Who prepares: Corporate attorney
Key provisions: Purchase price, vesting schedules, share restrictions, founder representations
Execution: Signed by each founder and the company (through an officer)
Timeline: Should be executed immediately after incorporation
Common mistake: Delaying founder stock issuance, which can create tax complications
5. Capitalization (Cap) Table
Who creates: Usually prepared by founders initially, then maintained by CFO or legal counsel
Format: Typically an Excel spreadsheet or specialized software (Carta, Pulley, Shareworks)
Essential information: All shareholders, share counts, ownership percentages, dates of issuance, and vesting schedules
Best practice: Update immediately after any equity events (issuances, transfers, option grants)
Pro tip: Most investors will request this, so keep it accurate and presentable
For LLCs:
1. Certificate of Formation/Articles of Organization
Where to file: Your state's Secretary of State website (or Delaware Division of Corporations if using Delaware)
Who handles it: Member, attorney, or formation service
Timeline: Typically 3-10 business days depending on state; expedited options available
Cost: Filing fees range from $40-$500 depending on state
Key decisions: Member-managed vs. manager-managed structure (impacts control)
2. Detailed Operating Agreement
Who creates: Ideally an attorney with LLC expertise, particularly for capital-raising provisions
Critical sections for capital raising:
Capital contribution mechanisms
Membership interest classes (if applicable)
Admission of new members
Distribution protocols
Voting rights and thresholds
Execution: Signed by all initial members
Common mistake: Using simple templates that lack provisions for future investors
Pro tip: Include detailed capital raising protocols from the start to avoid amendments for each new investor
Working with Professionals vs. DIY Formation
While many founders are tempted to handle formation themselves, consider these guidelines:
When to use DIY services (LegalZoom, Clerky, etc.):
You're forming a very standard entity with no special provisions
Your timeline is flexible
You have a solo founder or very simple founder arrangement
You're very budget-constrained
You're not immediately raising external capital
When to use professional services:
You're planning to raise significant capital soon after formation
You have multiple founders with complex equity arrangements
You need specialized provisions in formation documents
You're operating in regulated industries
You need guidance on multi-state operations
You're bringing on sophisticated investors early
Remember: The cost of fixing formation mistakes often far exceeds the cost of proper formation. A proper foundation becomes increasingly important as you raise capital.
The Conversion Decision: When and How to Change Structures
Signs It's Time to Convert Your Entity
Many successful companies begin with one structure and convert as their capital needs evolve. Consider conversion when:
When to use professional services:
1. You're bumping against shareholder limits
If you're approaching the 100-shareholder limit for an S-Corp, it's time to plan a conversion.
2. Investors are requiring a different structure
When investors make their funding conditional on a specific structure, evaluate the conversion process.
3. Your tax situation has changed significantly
As profitability and growth patterns evolve, the optimal tax structure may change.
4. You're planning international expansion
If you're approaching the 100-shareholder limit for an S-Corp, it's time to plan a conversion.
5. You're preparing for a major funding round
Understanding the Conversion Process
Converting between entity types involves several key considerations:
From LLC to C-Corporation:
Tax implications depend on conversion method (typically taxable or tax-free)
Operating agreement provisions may affect conversion procedures
Ownership conversion from units to shares requires careful mapping
Timing can impact tax situations for both company and members
Average costs range from $5,000 to $25,000 depending on complexity
From S-Corporation to C-Corporation:
Generally simpler than LLC conversion
Requires revoking S-election with the IRS
Typically costs $2,000 to $10,000 in professional fees
Often can be completed within 30-60 days
From C-Corporation to LLC:
Generally more complex and tax-inefficient
May trigger significant tax consequences
Rarely recommended for companies that have raised external capital
Should only be considered with experienced legal and tax guidance
Success Story: Miso Robotics
Miso Robotics, a leader in kitchen automation technology, used DealMaker to raise millions for their AI-driven robotic kitchen assistant, Flippy. Their fundraising campaign attracted thousands of investors while maintaining strict regulatory compliance.
"DealMaker's platform was a critical component in our rapid fundraising success. Their technology streamlined the process, ensured compliance, and enabled us to engage effectively with our investors."
- Rich Hull, CEO of Miso Robotics
Future-Proofing Your Structure: Strategic Considerations
Building a Structure That Grows With You
Beyond your immediate capital raise, consider how your structure will support future growth:
1. Anticipate Multiple Funding Rounds
If your business model will likely require several rounds of funding, start with a structure that facilitates this path, even if it seems more complex initially.
2. Consider International Expansion
Different structures create varying tax implications for international operations. If global expansion is in your future, factor this into your decision.
3. Plan for Potential Acquisitions
If acquiring other companies is part of your growth strategy, certain structures facilitate these transactions more efficiently.
4. Evaluate Potential Acquirers
If being acquired is a likely exit strategy, consider the structures preferred by likely acquirers in your industry.
5. Think About Talent Attraction
Your ability to offer competitive equity compensation depends partly on your business structure. C-Corporations provide the most familiar equity structures for attracting top talent.
By thinking several steps ahead, you can choose a structure that supports your entire company journey, not just your immediate capital needs.
Conclusion: Making an Informed Decision
Selecting the right business structure for online capital raising isn't just a legal formality—it's a strategic decision that shapes your fundraising journey and growth trajectory.
For most growth-oriented companies raising significant capital online, a Delaware C-Corporation provides the most advantageous foundation. Its unlimited investor capacity, flexible share classes, and investor familiarity make it the preferred choice for scalable fundraising.
LLCs offer valuable benefits for specific scenarios, particularly for real estate ventures, project-based businesses, and companies with significant tax considerations. However, they present increasing complexity as investor numbers grow.
S-Corporations, with their strict limitations on shareholder numbers and classes, are rarely optimal for substantial online capital raising, though they may suit certain smaller, targeted raises.
Whichever structure you choose, ensure proper formation, thorough documentation, and strategic planning for potential future conversions. Your business structure should support not just today's capital needs but your entire growth journey.
Ready to explore online capital raising strategies further? Check out our Ultimate Guide to Raising Capital Online and learn how DealMaker's comprehensive platform can streamline your fundraising process across any business structure.
Risk Disclosure: This guide provides general information and should not be construed as legal, tax, or investment advice. Always consult with qualified professionals regarding your specific situation.