On the tax efficiency of startup firms

• 成果类型: Article
• 署名作者: Allen, Eric J.; Allen, Jeffrey C.; Raghavan, Sharat; Solomon, David H.
• 署名单位: University of California System; University of California Riverside; University of California System; University of California Riverside; University Redlands; University of California System; University of California Berkeley; Boston College
• 刊物名称: REVIEW OF ACCOUNTING STUDIES
• ISSN/ISSBN: 1380-6653
• DOI: 10.1007/s11142-022-09677-1
• 发表日期: 2023
• 页码: 1887-1928
• 关键词: organizational form; CHOICE; performance

摘要

We 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.