Starting a new business can be both exciting and challenging. Protecting your business from day one can set you up for success and help you avoid costly litigation down the road. To help set you on the path to success, here are the top five items that every startup should consider:
1. Forming The Legal Entity That Best Fits Your Business Needs.
Becoming a legal entity rather than operating as a sole proprietorship will afford you limited liability legal protections. Barring any egregious behavior (e.g. comingling business funds with your personal accounts), forming a legal entity means you will be protected from personal liability if your business is sued. From there, you need to decide in which state to incorporate your business. Typically, most businesses register in Delaware because of its established corporate case law and separate Court of Chancery that hears cases specific to corporate law. Deciding on the type of entity for your business (e.g. LLC, S-Corp, C-Corp) is equally as important, as it can have different tax implications. For example, LLCs and S-Corps are taxed as pass-through entities, meaning the business owners report business income and losses on their personal tax returns. It is important to keep each of these items in mind when incorporating your business. For further insight on choice of entity, see my colleague Chip Wry’s article, Tax Considerations in Choosing the Form of Organization for a New Business.
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