Sole Proprietorship, Partnership, Limited Liability Company (LLC), or Corporation
As you move your business forward, you will get to a point where you need to put more structure around your business, and organize and prepare your company for more growth and success.
One part of this structuring will be the legal organization of your business, where you have four basic options – sole proprietorship, partnership, limited liability company (LLC), or corporation.
If you have done some Internet research or talked to friends or business contacts about how to structure your company, then you probably have taken in a lot of information and may be more confused now than when you first started. There is a lot of conflicting information and advice out there, and it’s not always easy to know which option is best for your business.
Think Inc.! In many cases, a corporation will be the best option that puts your company on the path to business funding, growth and success. You’ll need to review and understand how a corporation works and how it can benefit your business, before you begin looking into other legal structures.
To cut through the noise, below is some simple and practical guidance that explains why a corporation will be your best choice as you put the legal structure in place for your company.
1. Don’t Lose Your Shirt
- Starting a new business is risky enough without putting all of your personal assets at risk.
- With a corporation, you can keep your personal assets protected from the liabilities of your business and outside the reach of your company’s creditors.
2. You’re Not Working in Your Pajamas Anymore
- Well, even if you are (and that’s great), you don’t need to let your customers or business partners know.
- A corporation can help you put your best foot forward and create a more professional and credible presence.
3. Save Time and Get Mone
- Your business will need money to start, survive and succeed.
- A corporation can help you raise money more quickly from investors.
4. Don’t Let Your Secret Sauce Slip Through Your Hands
- From day one, you are focused on building a successful company with your unique blend of “secret sauce.”
- Use a corporation to collect and capture the value of all of the innovation and hard work, which is created by you, your team and others working on behalf of your company.
5. Get Organized for Growth
- A corporation will help you layer in the right management system for your business.
- That way, your company has a good game plan and the necessary checks and balances that you will need as you advance and grow your business.
6. Slice Up Some Ownership Pie and Make Your Team Happy
- Your employees and consultants will be more focused and committed to the success of your company if they have a slice of the ownership pie.
- With a corporation, you can give stock options to your employees, so that they help build a more valuable company and share in its success as eventual owners.
7. Pay Your Team When Cash is Tight
- When you start your company, you may not have enough cash to bring the right people on your team.
- You can use your corporation to compensate employees and consultants with the right combination of cash, stock and stock options, which will help hire and retain the right people for your company.
8. Keep More Cash in Your Pocket
- You and your company will have to pay taxes – that’s a given.
- With proper advice and guidance, your corporation can help you save on taxes, so that you end up with more cash for you and your business.
9. The Sky is the Limit
- There are good reasons why almost all large public companies are corporations.
- As a startup, you will have certainty as to how your corporation will function in the future (well developed corporate laws) as you expand and grow your business (perpetual existence and easy transfer of ownership).
10. Don’t Ride into the Sunset on a One Trick Pony
- You may be laser focused on building your company for future sale; and, you eventually might receive a purchase offer that you can’t refuse, or you might want to transition the business to the next generation of owners.
- A corporation will provide you with a variety of exit opportunities, such as a spin-off, stock sale, merger or asset sale, hich will help you cut the best deal for you and the other stakeholders as you exit the company.
11. Exit Gracefully
- Smart investors know about the financial benefits of qualified small business stock (QSBS).
- If your c-corporation meets the tests for QSBS, then you could receive BIG tax savings when you sell and exit your company.
These are just 11 of the many reasons why a corporation will be the right legal structure for your startup. We strongly encourage you to give a hard look at a corporation and its benefits before you jump into another legal structure solely based on a radio spot or friendly advice.
Which of the above features of the corporation is most important for your startup? Please let us know in the comments below. We would love to hear from you.