SMW Studios · Decision Brief

✓ Vetted by Ira (tax), Booker (CPA) & Perry (legal) — figures confirmed against current law (2025 OBBBA). Informational only, prepared by non-attorneys; not legal or tax advice. Use it to make an intent decision, then execute with licensed professionals.

The Entity Decision

LLC / S-Corp vs C-Corp — the one call on the roadmap that's time-sensitive and hard to reverse. Here are your two paths, side by side.

Start here — the question that decides it

Are you building a cash-flow business (keep the profits, pay yourselves) — or a build-to-sell / raise-capital company (grow the value, sell or raise later)? Your honest answer picks the path.

Where you are today

SMW Studios is a Georgia LLC with two members — by default taxed as a partnership: profits and losses flow straight to you and Michael, and active members generally owe self-employment tax on their share. No federal entity-level tax.

You can change how the LLC is taxed without changing the legal entity — e.g. elect S-corp taxation while staying an LLC. QSBS is different: it generally requires becoming an actual C-corporation (a Georgia statutory conversion, or forming a corporation and contributing the LLC into it) — a legal-entity change, not just a tax election.

Your two paths

Option A · Cash-flow

Stay LLC → elect S-Corp when profitable

Best when SMW is a business you run for the income you take out.

Keep the LLC. Once it's reliably profitable, elect S-corp taxation: you each take a reasonable W-2 salary, and profit above that salary passes through without payroll/SE tax — that spread is the savings (the salary itself still bears full payroll tax).

ProsSimple, flexible, pass-through (no double tax); real SE-tax savings on the distribution slice once profit clears a reasonable salary; early losses can flow to you.

ConsIRS requires a reasonable salary; payroll admin + employer payroll taxes can eat the savings below break-even; the distribution is still income-taxed; no QSBS.

Option B · Build-to-sell

Convert to a C-Corp while you're small

Best when you intend to raise outside money and/or sell the studio someday.

Become an actual C-corporation — a separate taxpayer (21% federal + 5.19% GA). The reason to do it while the company's value is still low is one thing: QSBS (below).

ProsQSBS can make millions of exit dollars federal- AND Georgia-tax-free; it's the structure investors/acquirers expect; clean cap table for equity to hires/investors.

ConsDouble taxation only if you distribute profits (corp tax, then dividends up to ~23.8% fed); more admin/cost; conversion needs a real valuation; hard to unwind (built-in-gains tax if you ever revert).

QSBS — the whole reason to go C-Corp

Qualified Small Business Stock · IRC §1202 · updated by the 2025 OBBBA law

Hold qualifying C-corp stock long enough, sell it, and exclude the gain from tax — federal, and (because Georgia conforms) Georgia too.

Potentially $0 federal + $0 Georgia tax on a large slice of your exit

50%

3-year hold

of gain excluded

75%

4-year hold

of gain excluded

100%

5-year hold

of gain excluded

Per-shareholder cap: the greater of $15M or 10× your basis (per shareholder, per company) — the $15M and $75M figures inflation-index from 2027.
Company gross assets must stay under $75M. Active qualified business — a product/software/game studio generally qualifies (it's fact-specific; stay a product/IP company, not a work-for-hire consulting shop).
You're on the new (better) 2025 regime. These enhanced rules apply to stock issued after July 4, 2025 — and since SMW hasn't issued any C-corp stock yet, whenever you convert you'll be under them.
Hold the stock individually (or in a qualifying trust), not inside another holding LLC, unless deliberately structured. The cap can sometimes be multiplied with planning (trusts / gifting) — ask Ira & Perry.

★ Ira's key point — convert while you're SMALL, not just "early"

When you convert the LLC into a C-corp, your QSBS starting line is the company's value (FMV) at conversion — and any value built up before conversion is carved out of the tax-free benefit (§1202 only shelters appreciation after the stock is issued). So the move isn't just "start the clock early," it's "convert before there's much value to lose." It needs a defensible conversion-date valuation.

Careful — "taxed as a C-corp" ≠ QSBS

Simply checking the box (Form 8832) to be taxed as a C-corp while staying an LLC does not reliably get you QSBS. §1202 wants stock in an actual C-corporation — a Georgia statutory conversion or a §351 incorporation. Which method is used is an attorney + tax-advisor call, and it drives your basis and when the clock starts.

Side by side

	LLC / S-Corp · cash-flow	C-Corp · build-to-sell
Taxation	Pass-through — no entity tax	21% federal + 5.19% GA at the corp; a second tax only if/when profits are distributed
SE / payroll tax	SE tax; S-corp trims it via salary + distributions	W-2 salaries; no pass-through SE tax
Raise VC / issue equity	Awkward	Standard, expected
QSBS tax-free exit	Not available	Available (as a real C-corp) — federal & GA tax-free
Best if you…	take profits as income	reinvest to grow, then sell/raise
Reversibility	Flexible (S-election has a 5-yr re-election lock if revoked)	Semi-permanent; QSBS clock can't be back-dated; reverting can trigger built-in-gains tax

What rides along with going C-Corp / raising

These come with the C-corp / equity path and are easy to miss — Perry flagged them:

83(b) · 30 DAYSThe 83(b) election is a hard 30-day deadline — arguably more urgent than the QSBS clock. If founder shares are subject to vesting, you must file the 83(b) with the IRS within 30 days of the grant. No extensions; missing it can be very costly. It gets set up the moment you issue stock.

VESTINGFounder vesting — and keep it symmetric. Decide before issuing stock whether founder shares vest (and reverse-vest on a raise). As 50/50 founders, the vesting, acceleration, and leaver terms must be identical for you and Michael, or one of you is quietly advantaged.

IPIP assignment from both founders — do this regardless of the entity choice. Everything either of you created (LEAP, Tile Dropper, Strategic Empires, Founders, the SMW brand) must be assigned in writing to the company and carried into the corp. Investors/acquirers diligence this first; gaps can tank a raise or sale.

GOVERNANCEBylaws + stockholders' agreement replace your operating agreement on conversion — the 50/50 governance, buy-sell, and transfer terms have to be re-papered into corporate docs (again, symmetrically).

SECURITIESRaising triggers securities law. Issuing stock to investors (or even employees) implicates federal and Georgia securities rules — use a securities-aware attorney, not just general counsel.

Why this one is time-sensitive

Two clocks you can't back-date

QSBS: the holding-period clock starts when the C-corp stock is issued, and your exclusion starting line is the company's value at that moment. Waiting means both a later clock and more built-in value carved out of the benefit — potentially millions of §1202 dollars lost.

83(b): a fixed 30-day filing window from any vesting grant, no exceptions.

Our read — CFO framing (advisory, not final)

Decide the intent now. Genuinely "lifestyle / cash-flow studio" → stay LLC, elect S-corp when profits justify it. If "build-to-sell or raise" is even realistically on the table → seriously weigh converting to a C-corp while the company's value is still low to lock in the QSBS benefit. It's the single biggest tax lever a founder gets, and the one you can't recreate after the fact.

Before anything is final

This is a real tax + legal decision — here's who nails down what

Ira (tax): the conversion mechanism (§351 vs statutory conversion) and its §1202 basis/asset-test treatment, the conversion-date valuation that sets your exclusion, S-corp reasonable-comp timing, and the 83(b) mechanics.

Booker (CPA): the opening balance sheet on conversion, and a real-numbers model of double-tax vs pass-through and the S-corp break-even before you elect.

Perry (legal): the actual conversion + GA Secretary of State filings, cap table, founder vesting / 83(b), IP assignment, bylaws/stockholders' agreement — and a securities-aware attorney if you raise.

Informational only — nothing here is filed, and none of it is final tax or legal advice; it was prepared by non-attorneys to help you two make an informed intent decision. Current law as of 2026 (2025 OBBBA); the $15M/$75M figures inflation-index from 2027, and Georgia's §1202 conformity can change — confirm at execution. Figures and mechanics get verified and executed with the reviewers above and licensed professionals.