In general, majority of tech startups choose C Corporation if they plan on raising venture capital. They are incorporated in Delaware and also have another entity in CA or the state they are physically located.

We also see many S Corporations especially technology consulting businesses.

Overall, there is no single answer to the best business tax structure. You need to evaluate based on your long term goals at least 5 years from now. Are you planning to raise outside capital? Do you plan on adding any non-resident partners etc?

We see many technology companies who are incorporated as C Corporations instead of S corporations. As a result, they end up getting double taxed-once as a C Corp and once as a shareholder. These companies ideally should have been structured as an S Corporation.

Converting to C to S and vice versa is possible, but there are many tax rules around shareholder basis, built in gains etc to be considered.

Therefore, I would highly recommend you schedule time with a tax professional  in the initial stages of formation.

 

 

** Based on our response posted to a question on Quora