Like many entrepreneurs, you have probably searched for ways to create a business that focuses on your passions. However, before you start your business, you have a few major decisions to make. Your business plan will help with most of them, but first, you need to determine the corporate structure that will best fit your business. These are some things you should consider.
Hold Your Intellectual Property
Keep your intellectual property in your name, not under your business. Intellectual property may include complicated assets, such as customized software, but it can also include simple things, such as your business website and phone number. You don’t want these to get into someone else’s hands if your business is ever sued. You can always sell them separately from your company, but if you are sued, your counterpart can use this property and your reputation to their benefit, and you can lose access to your website and phone number.
Choose Your Name Carefully
Finance companies tend to favor some businesses over others. For example, they may have more lenient lending processes for management companies than retail businesses. Research your prospective financiers to determine their preferences. Don’t try to disguise your company’s purpose but name it in a way that avoids stigmas related to your industry.
Your first task should be investigating the advantages and disadvantages of each business structure. For example, a sole proprietorship is easy to open and operate, especially due to its pass-through tax status, but this structure can place your financial security in jeopardy because you are held solely responsible for your company debts and lawsuit judgments.
LLCs and corporations are more complicated, but they separate your business, protecting your finances. In addition, a sole proprietorship is best for building an income, while a more formal structure is best for building a business.
Increase the Separation
Your business should be an entirely separate entity from yours. This means that it should have the proper structure, but it should also have separate bank, credit, and other financial accounts. In addition, you may consider creating a business trust. A well-structured trust allows you to control your business or assets without personal risk.
Create Separate Retirement Accounts
Small businesses have special retirement accounts, such as self-directed 401(k) accounts. As you save for your retirement, you will experience significant tax deductions. Also, any money you put away is untouchable in a lawsuit. Because you can save up to $50,000 per year, this can be a way to protect your finances from the IRS, business lawsuits, personal lawsuits, and even bankruptcy proceedings.
Make corporate structure decisions that benefit your company during its startup period.