What tax document might an investor receive if an LLC is taxed as a flow-through entity?

Neal BloomFounder, Funder, Builder

Why C‑Corps Matter #substack #shorts

23 Dec 2025 · 1 min

Watch on YouTube

1:28

Short video (Neal Bloom) explaining why C corporations are the industry standard for venture-backed companies. Speakers list many entity types but focus on LLCs and C corporations. Key points: LLCs are often taxed as flow-through entities, which can produce a K-1 for investors (income flows to investors and may be taxable even without cash distributions); investors can avoid direct K-1 exposure by investing through an entity. Despite growing investor comfort with LLCs, the industry standard—especially when VC funding is expected—is forming a Delaware C corporation.

Questions this video answers

A K-1 (investor must report the LLC income on their personal tax return).

Chapters

So there's lots of different types of entities, structures out there. This lists almost all of them. There's, you know, the sole proprietorship, limited partnership, general partnership. I'm not going to go down the list. But the ones that you really need to focus on are the LLC and the C corporation. Now a lot of people come to us and investors come to us and they say, is it okay to invest in a company that's an LLC? The question is, the answer is sometimes LLCs can be taxed as a flow through entity, which if you invested in the company directly means that you're going to receive a K1 when you do your tax return. That means that income at the LLC level will flow through to you personally and you're going to have to record that income on your tax return and pay taxes on it, regardless of whether you had a return on your investment or a distribution. Now there's ways to get around that you can invest through an entity rather than investing directly in the LLC itself. And investors are generally more comfortable investing in LLCs these days. But the industry standard still is investing in Delaware C corporations.
Especially if you're an early investor in a company that's later going to get investments from VC funds. They're going to, they're going to become a C corp, probably at some point. So you're focused on C Corps.