As an angel investor, I don't want to deal with that kind of hassle. If the company is losing money, it may want to carry forward the tax losses to offset future profits. If the company is making money, are you also going to distribute cash to your investors to offset the tax liability you just threw onto them? Will you get my K-1 to me well in advance of the April 15 filing deadline so I can plan my taxes, or will you piss me off by getting me a K-1 on Apr 14 and surprising me with a last minute tax liability? If any of your investors are non-US persons, now they have to file US income tax returns. These are the practical reasons why investors hate pass through entities.