9 Signs You Need to Incorporate Your Business Today
9 Signs You Need to Incorporate Your Business Today
Finally take the steps to form your business. When you decide to start a business by yourself or with a friend, you can set it up as a partnership or a sole proprietorship. You can easily become business owners with great success stories if you follow these instructions. Picking business names should come fairly easy if you know what industry you want to establish in.
No need to hire a corporate lawyer to get you setup. You can easily pay your incorporation fees online and launch your business today. First things first, you’ll need to obtain an articles of incorporation and get the proper business licenses. Setting up as a limited liability company llc, will keep you out of trouble! Here are the 9 signs that tell if you need to incorporate your business today:
1. You are launching a product/service to the market
One of the main reasons to start a legit business organizations is to help in the protection of the owners from any personal liability. You don’t want any legal issue. For instance, if there is any kind of issue between the owner and creditor, the owners will be personally liable. If you setup an official structure such as LLC, it would create a gap between the owner and the business. Choosing to incorporate companies is a necessary procedure. Once complete, the creditors won’t be able to touch your personal assets. You won’t be paying individual tax, but now transacting business deals. These incoming sales will be recorded under your business tax id. Don’t worry, business formation is easier than you think!
2. You are seeking funds
Whenever you are seeking funding for a product or service, it is crucial for you to incorporate your business. Any lender will be looking for your articles of incorporation and operating agreements. These are given to you once you fill out all your legal forms. Having this backup plan will allow you to predict with high certainty how things will work out. Because of this, forming an LLC or a corporation before setting up your campaign is the best approach. You’ll need to appoint a few directors and officers for your business if you plan on being in a partnership agreement.
3. You want to issue stock options
When short of cash, what most startups and entrepreneurs do when getting started is compensate early employees, vendors, and contractors by issuing stock certificates. This can be done with the aid of formal company. Although, you can have an agreement that after incorporation the contractor will get equity. Incorporating a company first will be much easier.
4. There’s more than one founder
Whenever people come together to fund a business, sometimes there’s an argument on how the equity should be shared. This is also applicable if the funders are close friends or relative. These kinds of misunderstandings can be prevented by simply incorporating your business. Then you can simply issue out stock to each of the founders.
5. You want to be acquired in a year or two
Let’s say you are developing an app that you hope to sell to Zynga or Facebook. You would much rather be able to get a long-term capital gain tax treatment on the sale proceeds rather than paying the same tax rate as an ordinary income. The founder needs to hold the stock for more than one year for this to be accomplished. The best strategy to use is to incorporate first and be sure to protect your intellectual property.
6. You are approaching VCs
If you are seeking for capital, ventures, VCs or other forms of third-party investment, there is need for you to have a formal structure in place. Most investors prefer working with C-Corporations because it allows two or more classes of stock. Also, it is easier to trade shares in a corporation than to trade membership interest in an LLC. So there is need for you to be structured as a C-Corporation so as to get the capital needed. Keep in mind you’ll want to choose a registered agents for the company. This is the person or entity that will be responsible for accepting any documents ( like pay taxes and annual reports) on the behalf of the business. This could be you or any of the designated officers.
7. You need business credit
If you need business credit for you’re a partnership or sole proprietorship, all the paperwork will be done with your own name and your personal credit will only be used in giving loans. This is because there is no separation between the business and the owners. However, you will need to form a corporation or LLC, so that the business can start building its own credit. Credit will help fuel business growth, but do pay attention to your overall profit and loss each month.
8. You want to invest money back into the company
If you have launched a startup and rather than thinking about how much you can spend, you focused on growing the business. You can incorporate your company in this case so that your profit will be reinvested. Such will make your company to be taxed at a lower corporate level and the money can be reinvested on equipment, marketing, infrastructure and so on.
9. Easier to pass on the business to your heirs
If you start up a sole proprietorship, the business will be in your name only but the reason why most people set up business is to pass it onto their children. When running your business, bring the kids into the business at tender age so that they can learn about the enterprise. Decide when to incorporate your business would allow you to determine the number of share that would be distributed. This is the main reason why corporation have perpetual life because the ownership of the company can be passed to a new shareholders with the sale of company stock.
Incorporating your startup is a big step and you will need to note that once a formal business structure is created, you will have to keep up with ongoing administrative obligation every year.