One of our clients wanted to launch a cleaning company while still keeping their full-time job. Initially, our CPA team recommended forming an LLC because it allowed pass-through taxation — enabling the client to deduct early startup losses directly on IRS Schedule C through their personal Form 1040 tax return during the critical startup phase.

However, the client later expressed interest in raising capital from outside investors by selling shares in the business. Since corporations are generally better structured for equity investment, we began evaluating a C Corporation structure instead. At the same time, we carefully explained the realities involved in selling shares publicly:

• SEC compliance requirements
• Legal and accounting costs
• Regulatory complexity
• Difficulty attracting public investors early

After reviewing these factors, the client decided to raise startup funding privately through family members and close associates. With that strategy shift, we reassessed the structure again.

Because the owners were all U.S. citizens or residents, had fewer than 100 shareholders, and met all IRS eligibility requirements, our team recommended forming a corporation and electing S Corporation tax status. This provided:

• Corporate liability protection
• Flexible ownership structure
• Pass-through taxation
• Shareholders deduct early losses on personal returns