Occasionally the question comes up as to whether or not a start-up should be a C-corp, S-corp, LLC or partnership (there's also sole proprietorships, but no one reading this wants to be a sole proprietor). The answer, simply put, is that unless you plan on being a small business with very few shareholders forever, you should be a C-corp.
Every large corporation (that I'm aware of) is a C-corp. It is the classic corporate structure, offering protection to shareholders from creditors (known as the "corporate shield"), unlimited stockholders and preserving all tax obligations / rights to itself. A key principal of C-corps is that each class of stock should be treated equally within itself, implying that while the rights of different classes can be different and complex, analysis of a capital structure can be focused at the class level rather than needing to get to the individual shareholder level. The main criticism of C-corps is that there is double taxation of any earnings dividended out to shareholders. This is because the company pays taxes on the profits and then the shareholder pays taxes on the dividends. Since most start-ups don't pay a lot of dividends, this isn't a major concern.
S-corps are an old structure that is rarely used now. They allowed for pass-through taxation, which was a benefit for small companies whose owners were often the founders themselves and had to pay out large bonuses to avoid the double taxation issue, thereby distorting their financial results. For unprofitable start-ups, the losses can be passed through to wealthy angel investors, allowing the benefit of those losses to be realized faster than in a C-corp (where they are effectively trapped until the company becomes profitable). On the flip side, S-corps can't have VCs or even foreigners as shareholders, so it really isn't a great option for most start-ups.
Partnerships are much more flexible than corporations. Profits and losses can be allocated partner by partner as fits the needs of the partnership. On the other hand, all general partners (and there must be at least one), carry personal responsibility for the liabilities for the partnership (ie - no corporate shield). These structures are rarely logical for start-ups that need to raise successive rounds of external capital to be used in operating the business. They make much more sense for law firms, venture capital firms and other 'people-intensive' businesses where the business might cease to exist if the prinicpals were no longer involved.
LLCs are a new structure (circa 1990) that combined the pass-through capability of S-corps and partnerships but retaining the corporate shield of a C-corp. However, once set, the structure is relatively inflexible and major changes can trigger the wind-down of the LLC. They are appealing to some angel investors but VCs can not take advantage of the pass-through losses.
The initial holding entity for Expo was an LLC because the paperwork can be very simple and cheap to file. However, as soon as we brought in the first external financing, we created a C-corp which bought all of the assets of the LLC and in return gave all of the common stock of the C-corp to the LLC. Because there was no value in the company, this was a tax-efficient and relatively simple transition.
Last but not least, you should probably register your C-corp in Delaware. The costs are low and all lawyers are familiar with the rules and standards in Delaware...Delaware law is the "english language" of the corporate world. No, you never have to go there.
Although this was all based on personal experience, I did do some fact checking on this very helpful page on all business structures from H&R Block and suggest you check it out as well.
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