The Company –
Once you become really serious about your business – meaning you choose a partner, decide to raise capital, go live to “real” customers, pretty much anything that involves putting you or your assets at risk – you should consider forming a company. It will cost you a few dollars but it is the first step to protecting yourself against personal liability while running your business. So balance it out – forming a company to limit personal liability versus exposing your home, savings, relationships to personal liability if the business runs into problems. The path seems clear so let’s focus on the first question. What form should your company take: corporation (C Corp, S Corp); limited liability company, sole proprietorship, partnership (general or limited)? What are the factors to consider: state law, personal liability, formation requirements/costs, administrative requirements, management, term, taxation, transferability of interest, capital raising, and ease of operation?. Did I say I would “SIMPLIFY”? Well, here are some thoughts. First and foremost, consult your accountant (yes, you should choose an accountant at the very beginning of the process – one who loves you more than your Uncle Sam!). Here are a couple of quick reference guides that compare the attributes of various corporate forms available: http://www.ailcorp.com/comparisonchart.htm or http://www.vcorpservices.com/entrepreneur/learning-center.php; and there are many more available if you Google “comparison of corporate forms”. The company formation can be done by your accountant, lawyer, or any on-line service [see http://www.vcorpservices.com/entrepreneur/learning-center.php ], but remember: ALWAYS CONSULT AN ATTORNEY FIRST. It is much harder and more expensive to undo what you may have done incorrectly than to just do it right the first time.
Next installment, your Shareholder or Operating Agreement (just think of it as your “Prenup”).