Abstract
AbstractWe examine the choice of organizational structure for VC-backed startup firms. These firms overwhelmingly organize as C-corporations rather than as tax advantaged limited liability companies (LLCs). This results in foregone tax savings of $43.9 billion, or 4.9% of the total equity invested in the sample firms. The decision is puzzling, given plausible estimates of the direct costs involved, but appears related to “hassle” and other transition costs generated by participants implementing a new form. Firms with more employees and investors are likely to choose the C-corporation. VCs appear to prefer the C-corporation form, as receiving VC money is associated with most LLC firms switching to a C-corporation within 30 days. Greater VC preferences for C-corporations are linked to a preference for familiarity, and less attention to taxes.
Publisher
Springer Science and Business Media LLC
Subject
General Business, Management and Accounting,Accounting
Reference47 articles.
1. Auerbach, A.J. (2002). Taxation and corporate financial policy. In Handbook of public economics, ed. A.J. Auerbach and M. Feldstein. North Holland.
2. Ayers, B.C., B. Bloyd, and J.R. Robinson. (1996). Organizational form and taxes: An empirical analysis of small businesses. Journal of the American Taxation Association 18: 49–67.
3. Bankman, J. (1994). The structure of Silicon Valley start-ups. UCLA Law Review 41: 1737–1768.
4. Barber, B.M., Y. Lee, Y. Liu, and T. Odean. (2009). Just how much do individual investors lose by trading? Review of Financial Studies 22: 609–632.
5. Benzarti, Y. (2020). How taxing is tax filing? Using revealed preferences to estimate compliance costs. American Economic Journal: Economic Policy 12 (4): 38–57.
Cited by
7 articles.
订阅此论文施引文献
订阅此论文施引文献，注册后可以免费订阅5篇论文的施引文献，订阅后可以查看论文全部施引文献