There are a million ways to skin a biz! Well, maybe not a million, but there are LOTS! Since we’ve set up tens of thousands of businesses over the years, we’ll get to the big picture things you should think about before setting it up! Oh, and, CONGRATS! Entrepreneurship is the best thing ever!
The biggest thing you should worry about with your new shiny investment company is liability! That’s just a fancy schmancy way of saying, you’re the one that has to pay for things if/when they go wrong, and by “you” we mean everything you own or may come to own in the future (inheritances included). Thankfully, this one’s pretty simple: get a business setup that “limits” your liability to the company itself, so that you’re not on the hook for the business’s problems! Someone sues the business for 2 million dollars because they were injured at the business’s location? The business has to pay what it has, but beyond that (if your business was set up correctly–by a lawyer), you don’t have to pay for it. Did your business mistakenly create some video with some other company’s IP, such as trademarks or copyrighted materials, and now they’re suing for hundreds of thousands? No worries, the business is liable, but you are not! All thanks to the wonderful legal technology of Limited Liability!
Limited liability was designed so that entrepreneurs could set up businesses and take risks with those companies, without risking their literal life savings at the same time. It’s a great technology, and hey, life happens! So, take advantage of it!
Taxes don’t become so important until your business starts to make real money, but when it does, it’s SUPER important! There are a lot of different ways to do your business’s taxes, and I’m no CPA/expert, so talk with a professional when you’re ready. You can file your taxes on an accrual or cash basis (this will drastically change the numbers, so it’s worth looking into depending on the company’s cash flow). You can tax it as a C-Corp, an S-Corp (with some restrictions), a partnership, or even a sole proprietorship (usually not the best option unless your company makes less than 100K in profits per year). You can also typically change the tax status and method for each taxable year, so this can be changed as the company grows!
Are you looking to spin up a company and then get investors, or run it for 10+ years by yourself? Will you have business partners, or is it just you? Do you plan to franchise the company? Do you plan to “take it public” on the Stock Exchange? The answer to these questions will dramatically change how (and where) you set up your company!
For example, if you’ve got a tech startup that you plan to sell to investors (do a Round A or B Raise, etc.), you’ll probably need corporate stock setup in Delaware, and maybe even some stock options for your first developers (and yourself!). Most of that would be useless and unnecessary, though, for a business that should remain with the same 1 or 2 owners for 10 or more years (for those, I’d normally recommend a simpler LLC).
The takeaway, here, is to get very clear about your goals and then consult with a business formation attorney to make sure that the business you’re looking to set up is a good fit for you!
You know what they say! It takes money to make money! It also takes TIME! Startups are blood-sucking at the start, at least normally, and it might take you a lot of time and effort before it actually turns a profit, and you’ll have expenses along the way that will have to be paid! Who or what can and will pay those expenses? You’ll have the business’s startup costs, ongoing costs such as equipment/loans/payroll, and your own rent/house payment, food, and gas as well.
There are a lot of different options to fund a startup. A good place to start is the SBA, which can typically do small loans to help companies get on their feet. You might have an investor who’s willing to invest money while you invest your time and effort (sweat equity). Maybe, you’ve got some funds stored up and ready to go!
It’s probably obvious, but I think we should state very clearly here that the company’s partnership and investment deals (loans, etc.) are very important for a business’s success. Get a business plan together, run some projections, and make it happen. It’s all a long (usually boring) trail of breadcrumbs, but if you set it up right, you’ll get to where you need to be in no time!
Lawyers are the best at registering businesses, since we do it so often. If you register it on your own, you might check the wrong boxes and make for hundreds (if not thousands) of dollars’ worth of mistakes that we lawyers need to fix later on. Messing up the registration could also affect your company’s success if done incorrectly.
Just as important is where you register the business! We’ve got another article about registering your company in another state or just using your own.
Some states allow for anonymity, if that’s important to you, but obviously you’d need a lawyer to set up the business in that case (to be anonymous).
We’ve set up tens of thousands of businesses here at Sparks Law and would love for yours to be the next one! We’re also here for our entrepreneurial people, and happy to take your calls and answer your questions along the road to your success! So, again, CONGRATULATIONS, and we hope we get the opportunity to work with you!
Cheers!
