Founder’s Guide, Part 3: Maximize Your Net Exit by Choosing the Right Entity for Your Startup
As entrepreneurs you take risks every day, one of those risks should not be tied to making a wrong decision on your entity structure. In this Part 3, we'll discuss how properly structuring your business can significantly decrease risks and increase the net value of your business. As an entrepreneur, one of the first questions that you are faced with is what kind of entity you should form. The possibilities are seemingly endless. You can go with a C-Corp, an S-Corp, an LLC, or an S-LLC. Let's explore the Pros and Cons of each type which may help you get some clarity for a decision that is not always a one-size-fits-all determination.
Pros and Cons of the Different Entity Types
C-Corp:
- Pros. The advantages of a C-Corp are the flexibility of capital structure and its attractiveness to all types of investments, both VC and debt financing. Originally issued stock in C-Corps qualify as Qualified Small Business Stock, which can result in some capital gains savings.
- Cons. The cons of the C-Corp are its double taxation. This is not a big deal when the company is generating losses, but at the time of an exit, a founder can lose serious money. Another con of C-Corps is that there are many corporate formalities requiring compliance to maintain the liability protections of the C-Corp.
- Ideal Candidate. High-growth startups wanting to attract top national VC firms or whose exit plan is through an IPO.
S-Corp:
- Pros. The pros of an S-Corp are the avoidance of double taxation as well as the ability to lessen employment and FICA taxes on owner-employees.
- Cons. The cons of the S-Corp are that it is extremely limited in its capital structure. For example, all shareholders must be individuals with a few limited exceptions for grantor trusts, and there can only be one class of financial ownership interests, which means no preferred stock. Both of these are issues that will not allow for VC financing. An additional con of S-Corps is that many corporate formalities need to be complied with to maintain the liability protections of the S-Corp. If you slip up, that slip up could result in a technical termination of the entity which could result in some pretty steep tax liabilities.
- Ideal Candidate. Small consulting or service businesses with individual owners who don’t plan on raising Venture Capital or Private Equity financing.
LLC:
- Pros. The pros of the LLC are numerous: (1) pass-through taxation; (2) flexibility in capital structure; (3) attractiveness to vast majority of potential investors; and (4) flexibility in management and lack of entity formalities.
- Cons. Disfavored by some VC investors, but with proper planning as discussed below, the adverse tax consequences can be mitigated. It doesn’t have the ability to minimize FICA taxes to owner-employees as all income is passed through to its owners.
- Ideal Candidate . LLCs are the preferred entity because they are well suited for most businesses unless your planned exit is an IPO.
S-LLC:
- Pros. The pros of the S-LLC are all of the benefits of LLC with the addition of being able to minimize FICA taxes.
- Cons. All of the disadvantages of S-Corps except the rigid corporate formalities are lessened.
- Ideal Candidate. Same as for S-Corps, but these entities are a little more flexible in entity formalities and are thus generally more favorable than S-Corps.
The following table compares the above-listed entity types:
Conclusion As you can see this is a complex decision to make and one that you should discuss carefully with both your attorney and accountant and preferably at the same time. The three takeaways from this article are the following:
- Entity structuring is not a one-size-fits-all scenario and needs to take into account many factors, including the type of business involved, its owners, and how it plans on raising money in the future. Each entity comes with its own risks.
- LLCs are oftentimes the best entity structure for entrepreneurs.
- Hire good corporate counsel early to help you take the right risks, and the few thousand dollars you spend on them could save you mountains of money at exit.
As the federal fiscal year draws to a close, thousands of federal employees face an unsettling possibility if a continuing resolution is not passed: not just another shutdown and temporary furlough, but permanent layoffs through Reduction in Force (RIF) notices. This week, the Office of Management and Budget (OMB) instructed federal agencies to consider issuing RIF notices to employees (if certain conditions are met) rather than the usual temporary Furlough notices issued during shutdowns. This is a big shift. But it does not mean layoffs are guaranteed. If they occur, federal employees are protected by a robust set of legal rights. There’s still a process before a RIF can be properly issued, complete with notice rights, retention rights, appeal rights and such other rights that the OMB does not purport to usurp. That said, we understand that the anxiety of this uncertain moment is real. Here are some tips to best prepare for the unknown, come the end of the federal fiscal year: Download Your eOPF, ASAP o Your electronic Official Personnel Folder may become inaccessible during a shutdown. Download it now to preserve your employment records. Download Your last 3 Performance Appraisals, ASAP o Include mid-year reviews and commentary. These documents may affect retention rights in a RIF. Also save records of other awards, commendations, and other notable performance records. Save Key Communications o Save emails, memos, or notices from HR or supervisors about your employment status or shutdown protocols. Ask Questions o Supervisors, HR, and union reps are navigating this too. Don’t hesitate to ask questions. If you receive a RIF notice or suspect you were subject to procedural violations, don’t hesitate to reach out to us for our advice. We are here to help. Shutdowns may be political. Your livelihood is personal. Let us help you safeguard it. -Adrienne Langmo, Partner
If you're working for — or running — a business with under 50 employees, the Family and Medical Leave Act (FMLA) might seem like a distant federal regulation. But for eligible employees and covered employers, it’s a powerful tool for balancing work and life during major health or family events. Here's what you need to know. 🧩 The What The FMLA is a federal law that allows eligible employees to take up to 12 weeks of unpaid, job-protected leave in a 12-month period for specific family or medical reasons, including: The birth or adoption of a child Caring for a spouse, child, or parent with a serious health condition Recovering from a serious health condition themselves Certain military-related family needs The leave can be taken intermittently, in blocks, or in one long swath. During FMLA leave, employers must maintain group health benefits as if the employee were still working. When the leave ends, the employee is entitled to return to the same or an equivalent position. 👥 The Who FMLA is mandatory for employers with 50 or more employees within a 75-mile radius. So, if your business has fewer than 50 employees at a given location, you’re not legally required to offer FMLA leave —but you can choose to adopt similar policies voluntarily. Employees must also meet FMLA eligibility criteria: Worked for the employer for at least 12 months Logged at least 1,250 hours in the past year Work at a location with 50+ employees within 75 miles *State employees may have additional benefits provided under state law. Here, we’re discussing private employers and employees. 🛠️ Employer Takeaways Treating employees appropriately during their FMLA leave and upon their return can present some hurdles for employers and coworkers, particularly when an employee has been on leave for some time and, e.g., projects or programs have evolved in their absence. You don’t have to navigate these situations alone; we can provide your team with the tools and information necessary to smoothly navigate the full FMLA process and avoid any sticky FMLA retaliation or interference claims. And, even if you’re not legally bound by FMLA, offering comparable leave can be a smart move. It builds trust, boosts retention, and shows you value your team’s well-being. Consider crafting a voluntary leave policy that mirrors FMLA protections, including: Clear eligibility rules Defined leave duration Job protection guarantees Coordination with paid time off or disability benefits For small businesses, this means you have flexibility—but also responsibility to communicate policies clearly. Want to overhaul those policies or craft great messaging to your team, give us a call! We’re here to make leave policies less painful and more practical. 📣 Employee Takeaways If you work for a small Utah employer, ask about your company’s leave policies. While FMLA doesn’t require you to use your accrued leave during your FMLA leave, it allows your employer to write into its policy a requirement that you do so. Make sure you read that policy! And, even if FMLA doesn’t apply, your employer may offer benefits similar to FMLA. If you’re dealing with a serious health issue or family emergency, document your situation, give notice as early as possible, and follow internal procedures. Need help understanding those procedures or your rights as an employee? We got your back! ⚖️ Final Thoughts FMLA is more than a legal acronym—it’s a lifeline for employees facing life’s biggest challenges. For Utah employers, understanding the law and choosing to offer similar protections can set your business apart. Whether you're an HR manager, CEO, or a team member, knowing your rights and responsibilities helps everyone navigate leave with clarity and compassion.
So, you’ve got an employee that wants to teach a night class? Drive for a ride share? Pursue a passion project on the side? That’s great…. Right? You can ensure it’s great for both you and your employee by entering a non-compete, non-solicitation, non-disparagement, and/or non-disclosure agreement and setting clear workplace boundaries . Non-Compete Agreements can help employers do damage control when an employee wants to branch out. Non-competes alone are limited, but when properly crafted and paired with the other agreements listed above, they can provide peace of mind and protection to employers. Utah law takes a close look at these agreements when it comes to enforceability, so don’t go it alone when it comes to crafting one. Boundaries Set boundaries with your employees on the use of their time, your equipment, and your company’s other resources like client lists or IP. And pay close attention with remote or telework employees where boundaries may be squishier. Here’s some examples where lines may get blurred: Can the employee use the office printer, or their allotted printing budget for their teaching gig? What if it’s just a couple sheets of paper? What if it’s their 100-page course outline? Maybe. Do you have an equipment policy that allows employees minor personal usage of the office equipment? Does it define “minor”? Might you want to update that policy if it doesn’t provide the clarity you need? We can help! Can the employee pick up a ride share client in the company vehicle while they’re out running an errand for the company What if it’s their personal vehicle? What if the trip is along the way, no deviation? Definitely not the company vehicle for insurance purposes of carrying a random person around. But otherwise, this raises the charmingly titled legal doctrine of “frolic and detour” where it is much less messy in terms of liability (for accidents, etc.) if the employee does not engage in personal errands while on the clock, when they’re supposed to be completing your company’s business. No double dipping. No frolicking, as tempting as frolicking sounds. Can they email one of the company’s clients with a question that’ll help them move things forward on their side project? Generally, probably not, especially if you have a non-solicitation agreement in hand. But, it may depend on more details than this scenario offers. When in doubt, talk about it with your employee, get an idea of what their end game is, and give us a call if you need a sounding board. Need help handling questions like these, updating policies, or putting together a non-compete agreement? We can help!
