Three years ago, I started cre8Buzz. It was a social networking site, that combined, Facebook, Twitter (not that we knew that then), Yahoo Buzz, and Myspace. cre8Buzz was about getting “buzz” for the best content on the web, regardless of the size of the persons social graph. It was a good run, we had a lot of fun, but in the end we didn’t raise enough money to keep it going.
We just finished cre8Buzz’s taxes today and realized we made a terrible mistake. We registered as a C Corporation.
Why was this bad? It was bad for the founders. We put a lot of money into cre8Buzz. It was founder money that kept cre8Buzz going in between funding rounds. By registering as a C Corporation the founders are unable take the tax losses.
I have started several businesses and never created a C Corporation. In hind-site, I don’t recall why we chose to be a C Corporation. Regardless, it was a terrible decision.
Fred Wilson had a good post on the different types of corporate entities you can start (LLC, S-Corp, C Corp.) When starting your first business, the type of entity you start can seem a bit innocuous, but it’s not.
Learn from our stupid mistake. Be clear of the goals of your business. Learn what entity will best work for you. Making the wrong decision can cost you tons of money or worse. It did us.