Insights

Washington, January 2, 2020: Crowell & Moring represented Flux7 Labs in its sale to NTT Data, a U.S. subsidiary of Japan-based Nippon Telegraph and Telephone, a global technology services leader.  Founded in 2013 and based in Austin, TX, Flux7 has garnered a sterling reputation as an Amazon Web Services Premier Consulting Partner. Flux7 provides cloud implementation and migration, automation, and DevOps consulting services for cutting edge and large companies, primarily in the software, communications, financial services, pharmaceuticals and retail sectors. 

While forming a new entity is generally quite easy, corporate structure and tax considerations play a fundamental role in a startup’s ability to raise capital. Prospective investors have expectations for how a “venture backable” business (i.e., a business with the potential to generate significant returns with a potentially high valuation) is to be organized under state law and classified for income tax purposes. However, the fundamental question for founders is: what actually makes the most sense for the business? Here we briefly discuss four structures for forming a new business and their tax classifications: (1) a state law corporation classified as a C corporation; (2) a state law corporation classified as an S corporation; (3) a limited liability company (“LLC”) classified as either a C corporation or an S corporation; and (4) an LLC classified as a sole proprietorship or partnership.