Why Protosome is a C Corp
We’re frequently asked why we structured Protosome as a C-corporation instead of a traditional investment fund. It’s a fair question—and one worth unpacking, especially for others building long-term businesses with similar ambitions. Here’s how we think about it across a few key dimensions:
Why “Double Taxation” Is a Feature, Not a Bug
One of the most common objections to a C-corp is the dreaded “double taxation”—once at the corporate level and again at the shareholder level if distributions are made. If your primary objective is to return capital to investors on a frequent basis, this is a valid concern.
But that’s not our model.
We’re not optimizing for near-term distributions—we’re optimizing for long-term internal compounding. In that context, the tax friction of pulling capital out of the business becomes a useful constraint. It nudges us to keep capital inside the system, aligned with our core thesis: build and hold for decades, not quarters. In a way, it’s a built-in guardrail—an example of “unpleasant design” that reinforces our long game.
Holding Company > Fund Mentality
The fund model has a lifecycle. No matter how long-dated, it ends. LPs expect liquidity. GPs eventually move on. Meanwhile, the opportunity we see—especially in small-cap healthcare M&A—is fundamentally open-ended.
That’s why we opted for a holding company structure. It’s permanent. It allows us to reinvest cash flows from existing businesses into new acquisitions without requiring external capital every time. It lets us operate patiently, buy with discipline, and focus on building enterprise value across the long arc—not on raising the next fund.
Potential for Long-Term Tax Advantages
Although it wasn’t the primary driver behind our decision, the C-corp structure may offer substantial long-term tax benefits for shareholders through Section 1202 of the IRS Code, also known as the Qualified Small Business Stock (QSBS) exemption.
If certain conditions are met—including assets under $50 million at issuance and holding periods of at least five years—up to $10 million in capital gains (or 10x the cost basis) can be excluded from federal taxes. For long-term builders and holders, it’s worth understanding.
Structural Agility & Capital Allocation
Not all of our portfolio companies will have the same reinvestment potential. A holding company structure gives us the freedom to direct free cash flow from capital-light entities into higher-growth opportunities elsewhere—or to pool resources for strategic acquisitions—without needing to untangle complex ownership webs.
It also lets us centralize key functions—finance, HR, legal, benefits, IT security—where scale drives efficiency and cost savings. This streamlines operations and raises the baseline across the group.
A Culture of Ownership Across the Portfolio
Perhaps the most powerful—yet most overlooked—benefit of this structure is cultural.
Each of our operating companies runs its own playbook and is rewarded based on its own performance. But equity participation happens at the Protosome level. That means our people don’t just work for their individual business—they contribute to, and benefit from, the success of the entire group.
We’re building a federation of entrepreneurs with aligned long-term incentives. One team. One cap table. One shared dream.
Final Thoughts
This structure isn’t for everyone. A traditional fund approach might’ve been simpler to launch. But we started from first principles—what we wanted to build, how long we wanted to hold it, and what would set us up for decades of compounding.
So far, the C-corp model has delivered exactly what we needed: clarity, alignment, and long-term runway.
Of course, this isn’t legal or tax advice. Every builder’s journey is different. Talk to your advisors. But if you’re thinking long-term, it’s worth considering a structure that can go the distance.