Build It So They Will Come

Windlogics, Inc., a St. Paul–based company that provides meteorology services for wind-energy projects, got its latest round of venture capital financing in 2003. The company had the management and prospects to attract investors—but there was still something about Windlogics that had to change.

“The lead investor required us to reincorporate in Delaware,” says Mark Ahlstrom, Windlogics’ CEO. “Some major investors prefer Delaware law with regards to its shareholder-rights provisions.” A little time and some legal fees later, Windlogics made the change, and the deal went through.

"I've seen a $50 million deal where there was enough concern about the company's S corporation eligibility status that the deal didn't happen," says Barbara Rummel, Lindquist & Vennum.

Most entrepreneurs choose business structures—S corporations, C corporations, and limited liability corporations—that make sense for them and for their companies. They pay particular attention to liability and taxation issues—both important considerations.

However, investors and purchasers often prefer one business structure to another, and the presence or absence of those structures can help make or break a deal.

Considering the advantages and disadvantages of different business structures with an eye toward financing and sale can make a strong company even more attractive. It can also help save hassle, delay, and legal fees if an investor or buyer insists that a company change its structure before any deal can go through.