Why would an LLC elect to be taxed as a c corp?

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Lots of reasons: LLC members become shareholders of the corp, so are no longer self employed and avoid self employment tax.

It's also possible that the corp tax rate (even if accounting for double taxation) is lower than the member's individual tax rate.

There are also additional governance reasons why an LLC might do this as well, but question presented is solely tax.

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Does the LLC have VC investors? VCs don’t generally like to invest in LLCs. Does the LLC have a long term horizon for whatever it is they’re doing? To me it just sounds like a strategic tax decision or if someone wants the c corp tax structure but with governance flexibility of an LLC.

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EC/VC senior here. There are issues with funds investing in pass through entities that creates reporting/tax problems for the funds’ LPs and usually necessitates a blocker entity for the investment.

But Attorney 1 is mostly on the money that DE corps are a tried and true way to do things and it doesn’t do anyone good to have a pair of extremely expensive tax attorneys on either side navigating a bespoke liquidation preference provision to figure out whether the waterfall actually works or not.

Other answers are right, additionally, if there are foreign investors or pension fund investors they may wish to “block” passthrough income and turn it into dividends.

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Qualified small business stock tax benefits

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In addition to what’s been mentioned, Foreign investors and other international tax reasons.

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F

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Sometimes I see it in M&A as well. We structure acquisitions with LLCs for flexibility so they can elect to be treated as a c corp if it fits into their larger structure more efficiently - as mentioned that may be to block certain investors or simply because the larger structure is corporate focused

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To block ECI/UBTI for foreign investors and tax exempts. You need to remember a Corp for tax purposes is not necessarily a Corp for legal purposes. I’ve never gotten a good answer as to why funds structure themselves as LPs, which others allude too. It probably is legacy and familiarity by LPS. You could also get less corporate BS to deal with with same tax result by setting up an LLC taxed as a Corp, rather than a corporation from outset (which can’t elect the same way an LLC can).

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