Josh Burgess

Posted on May 19 • Originally published at Medium on Apr 9

The Start of Something Big

#startup #founders #business #programming

START OF A STARTUP

How to Incorporate, Taxes, and Other Founder Essentials

I am going to start a series of articles that are a little less technical and a little more business and personal — though don’t worry, I will still be sending out some sick tech tutorial blogs — just with these sprinkled in the mix. I like building things, and this time I am building something as a founder. Along the way, I’ll be documenting the lessons learned as I’m founding my company, Mudget.

Out of the gate, being a founder means wearing a lot of hats. You are the C suite and boots on the ground, so get ready to test your marketing skills, your technical prowess, and your business acumen. But the hardest part is just taking the chance. So many ideas and companies are not built because people fail to take the first step — incorporating the business.

But ah, the age-old question: LLC vs. C-Corp vs. S-Corp — Which Business Structure Will Make You the Next SaaS Unicorn?

I’ve found that if you’re starting a SaaS company, picking the right business structure isn’t just about taxes (though Uncle Sam definitely has a say). It’s about fundraising, liability, paperwork, and long-term scalability. So let’s break it down in a way that won’t make you wish you’d never taken the leap.

Quick disclaimer ~ I am not a lawyer or CPA, but wanted to put together a digestible, leagalease free guide for a new entrepreneur. If you have nuanced questions, please seek out a good lawyer for these.

1️⃣ LLC (Limited Liability Company) — The Chill Indie Hacker’s Dream

What It Is

An LLC is the “low-commitment relationship” of business structures. It’s flexible, easy to set up, and lets you keep your business and personal assets separate. Best of all — you can choose how you’re taxed.

Pros for a SaaS Company

✅ Simple & Flexible — Less paperwork, fewer legal hoops.

✅ Taxation Options — Can be taxed as a sole proprietorship, partnership, S-Corp, or even a C-Corp.

✅ Limited Liability — Your personal yacht is safe (once you buy one).

Cons for a SaaS Company

❌ Not VC-Friendly — Investors dislike LLCs. They want Delaware C-Corps (more on that later).

❌ Self-Employment Taxes — If taxed as a sole proprietorship, expect to pay 15.3% in self-employment tax on profits. (as of Feb 2025)

❌ Ownership Restrictions — Some tax advantages (like S-Corp status) are harder to get with an LLC.

Best for:

📌 Bootstrapped SaaS founders who don’t plan to raise venture capital anytime soon.

2️⃣ C-Corp (C Corporation) — The Venture Capital Darling

What It Is

A C-Corp is the full send. It’s built for scale , preferred by investors, and lets you issue different stock classes. But, it comes with double taxation — which sounds as bad as it is. 💸

Pros for a SaaS Company

✅ Investor Magnet — VCs only invest in C-Corps (especially Delaware C-Corps).

✅ Stock Incentives — Issue stock options to employees (hello, talent retention!).

✅ Limited Liability — Protects founders from lawsuits.

✅ Low Corporate Tax Rate — 21% flat rate (thanks, 2017 Tax Cuts and Jobs Act).

✅ QSBS Exemption — If you hold stock for 5 years, you may avoid capital gains tax on up to $10M when selling.

Cons for a SaaS Company

❌ Double Taxation — The company pays corporate tax (21%), and dividends are taxed again on personal returns.

❌ Heavy Paperwork — Required annual meetings, board minutes, and more.

❌ Regulatory Overhead — Strict compliance, especially for Delaware C-Corps.

Best for:

📌 VC-backed SaaS startups planning to raise millions and go public.

Why Do All the Cool Startups Pick Delaware?

If you’ve ever peeked at where tech giants are incorporated, you’ll notice one thing: Delaware. Even if a startup is based in California, Texas, or New York, it’s probably a Delaware C-Corp. Why? Because Delaware is basically the VIP lounge for corporations — it has the best legal protections, tax perks (sometimes), and makes investors feel warm and fuzzy inside.

But is it always the right choice?

Delaware C-Corp: The Startup & VC Favorite

Why It’s The GOAT for Startups

✅ Investor-Approved — VCs expect it. If you plan to raise money, Delaware is practically a non-negotiable.

✅ Stock Flexibility — You can issue preferred stock (essential for investor deals) and stock options (for employees).

✅ Business-Friendly Laws — Delaware’s corporate law is fast, clear, and company-friendly. The Court of Chancery (special business court) lets you skip juries and get rulings from expert judges.

✅ Tax Benefits (Sort Of) — No corporate income tax on out-of-state revenue. No sales tax, investment income tax, or tax on intangible assets (which SaaS companies love).

✅ Easier Mergers & Acquisitions — If you dream of being acquired for billions, Delaware law makes it faster and smoother.

The Downsides of Delaware C-Corp

❌ Extra Fees & Paperwork — You’ll need to register as a foreign corporation in your home state, meaning you’ll pay two sets of fees.

❌ Franchise Tax Can Be Costly — Delaware charges an annual franchise tax that can go up to $200,000+ for large companies.

❌ Not Ideal for Small Bootstrapped Companies — If you’re not planning to raise funding, a home-state C-Corp (or even an LLC) might be simpler and cheaper.

Yes, it costs more upfront, but it saves you headaches later when you inevitably need to raise funds, issue stock, or avoid a messy legal battle. If you’re serious about growing a startup beyond six figures , a Delaware C-Corp is the smartest long-term move.

If you’re bootstrapping indefinitely and don’t want investors, then sure — stay local and save some cash. But if there’s even a 1% chance you’ll take on funding, just start with Delaware C-Corp from day one. Your future VC term sheet will thank you. 💸

If you’re raising VC money, remember:

🔥 They need huge exits — If your startup won’t hit $100M+, they won’t care.

🔥 They expect aggressive growth — VC-backed startups must scale fast or die trying.

🔥 They own part of your company — If you raise a lot, you could lose control over decisions. I will write about Cap tables, a tool to understand ownership, if I ever need to make one or if enough people are interested.

So before taking VC money, ask yourself: Do I want a billion-dollar company, or do I want control over a profitable business?

VC is a rocket ship 🚀 — fun if you win, but brutal if you’re not built for it. If you don’t want to play that game, bootstrap or find angel investors instead.

3️⃣ S-Corp (S Corporation) — The Tax Hack for Small Founders

What It Is

An S-Corp is like a C-Corp’s frugal younger brother. It’s structured like a corporation but avoids double taxation because profits pass through to owners. However, it has ownership restrictions.

Pros for a SaaS Company

✅ No Double Taxation — Profits pass through to your personal tax return.

✅ Lower Self-Employment Tax — You can pay yourself a “reasonable salary” and take the rest as distributions (which aren’t hit with self-employment taxes).

✅ Limited Liability — Keeps your personal assets safe.

Cons for a SaaS Company

❌ Ownership Limits — Max 100 shareholders, and they must be U.S. citizens or residents. No VCs allowed.

❌ Less Attractive to Investors — If you plan to raise money, you’ll need to convert to a C-Corp anyway.

❌ More Paperwork Than an LLC — Still need payroll, tax filings, etc.

Best for:

📌 Solo SaaS founders making ~$80K+ in profit who want tax savings but don’t need VC money.

Steps to Incorporate

Research and decide on the business structure (…you just did this 🐐)
Choose a business name that does not infringe on another business. You should look into available domain names, trademarks, and your state usually has a platform where you can check this (you can find PA’s here)
The process varies by state, but you will need to register the name of your business, and you can trademark it for good measure at United States Patent & Trademark Office
Appoint a registered agent responsible for receiving legal documents on behalf of your corporation
Draft and file articles of incorporation, the official documents that establish your business as a corporation in your state!
Get an employer identification number (EIN), this is essentially the business’ social security number, you need this for the next step
Open a Business Bank account that is used only for business transactions (don’t give anyone a reason to take your new yacht)
Depending on your business you may need federal, state, and local permits and licenses to operate — if so, obtain them before doing business
Bookkeeping and Budgeting is essential to reduce stress (Look to Mudget in the future for a B2B offering on this 🦄)
Go do business and change the world!

Using Services

Not sponsored — yet! Get in touch 📲

If you are incorporating, using an online service can give you ease of mind on compliance and be quick for checking all the boxes. Your tradeoff is the expense they tack on for providing you this service. These will offer solutions for a lot of the steps needed when incorporating and making your business official.

ZenBusiness — Easy to use, worry-free compliance at a low cost

Stripe Atlas — Plenty of integrations to other services like AngelList and Carta (great for SaaS)

Doola — Super easy to use and has a service market place for finding great startup tools

Final Takeaways

LLCs are great until you want VC money.
S-Corps are ideal for solo founders looking for tax efficiency.
C-Corps are mandatory if you want to raise millions and IPO.
Delaware C-Corp is the gold standard for tech startups.

If you’re still undecided, just start with an LLC taxed as an S-Corp , then convert to a C-Corp if investors come knocking. Easy pivot, fewer headaches. Since this is a side project at the time of writing, I am going the chill-indie-hacker route and incorporating as an LLC taxed as sole proprietor. You can always incorporate later or change how you are taxed.