What is the best type of incorporation for a tech company seeking funds (angel or venture capital)?

Every country has its own corporate laws, but in general angel investors and venture capital firms prefer to invest in corporations in which it is possible to have different classes of shares, such as common shares and preferred shares. This is true not just for tech companies, but also for non-tech companies.

In the USA, Angel investors and venture capital investors typically invest in C corporations with the word “Incorporated” (i.e. “Inc.”) or “Corporation” tacked on at the end. In other countries, there are similar entities.
1. In Germany, Austria and Switzerland best type of incorporation (from the point of view of angel and venture capital investors) is the GmbH (“Gesellschaft mit beschränkter Haftung”, meaning “limited liability business association”), as well as the AG (“Aktiengesellschaft”, meaning “business association with shares”).

2. In the United Kingdom, the usual form is Ltd. (abbreviation for limited company) or plc (abbreviation for public limited company).

3. In France, Switzerland, Belgium and Luxembourg the best form is “SARL” or “société à responsibilité limitée” (“company with limited liability”) or SA “société anonyme” (abbreviation for anonymous partnership).

4. Italy uses “Srl”, or “Società a Responsabilità Limitata” (limited liability company) and “SpA” or “Società Per Azioni” (stock corporation).

5. In India the usual form of incorporation is a “Limited” (i.e. “Ltd”) company, also known as “Private Limited” if the number of shareholders is small.

Angel investors and venture capital firms typically do not seek to invest in partnerships, sole proprietorships. Pass-through entities, such as S Corporations and Limited Liability Companies, are also not preferred by angel investors and venture capital firms. There are many reasons for this – for example, unlike corporations, LLCs are not required to have a board of directors or officers.

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