Take 5: Considerations When Starting Your Business
Maybe you’ve asked yourself, why not today? Maybe your employment status has changed. For whatever reason, you’ve decided to start your own business. Congratulations! Taking that first step can be difficult and scary. But it is also exciting, and Cruxterra, utilizing its founder’s roadmap, wants to do what it can to assist you in making that transition to entrepreneur and founder. Below is a brief overview of several factors to keep in mind as you determine what’s next:
1. Choice of Entity. Although you can run your business as a sole-proprietorship or a partnership, generally, the reason you form an entity for your business is to limit your personal liability. The most popular entities to accomplish this are the limited liability company (“LLC”) and the corporation. LLC’s are popular because they require less formality in terms of governance and are generally easier to manage. Corporations require more formality, but are the popular choice if you plan to raise money in exchange for equity or plan to provide equity to employees or service providers through an equity incentive plan.
2. Choice of State. You’ve decided what entity you want to form. Next, you have to decide the state where you want to organize the entity. Most often, this will be the state where you plan to locate the business. However, other factors sometimes influence the location decision. For example, if you are a start-up that knows it will seek to raise outside capital, you might consider forming a Delaware corporation because many venture capital firms require that of any entity they intend to fund. Another example would be forming an LLC in Wyoming as a way to protect your personal identity since Wyoming’s reporting requirements are less stringent than most states.
3. Governing Documents. Whether it’s a corporation (Bylaws, Shareholder Agreement) or an LLC (Operating Agreement) it is important to have governing documents in place as these documents illustrate the rights and responsibilities of the company as well as individual shareholders (corporation) or members (LLC). These are especially important to get in place at the outset if your company will have multiple founders.
4. Business Licenses. Determining what business licenses are required can be tricky. What is required at the state level? Do I need one from the city where I work? What happens if my business address is in one city but I work primarily from home in another location? These are questions you will want to address prior to commencing operations. States such as Washington have a very helpful online tool and application process to help determine the requisite licenses for a business.
5. Choosing How You Will Be Taxed. This is a question for your accountant! And we strongly recommend you speak with an accountant or tax professional prior to forming your entity because depending on how you elect to be taxed, there are very strict filing deadlines that begin as soon as your entity is formed.
This article is meant only as a brief introduction of factors to consider when starting your business. Again, we realize that starting a business can be intimidating. However, you are not alone; we are here to help. If you have specific questions about starting your business, or just have a general idea and are looking for guidance, we’d love to connect!
letsgo@cruxterra.com
