Starting a business can cause overwhelming emotions, from excitement to stress. There are so many considerations to think about. Miss something, and you could put your business at risk or make things more complicated for you. These eight business formation insights will help you find success when you start a business in 2024.
1. Types of Business Entities
Before forming your new business, you need to know what type of business you want to create. The type of entity you choose will impact how you manage your business, financial funding options, and tax liability. Choosing the right entity in the beginning is crucial because it can become incredibly complicated later to change. These are the most common types of business entity formations.
- Sole proprietorship
- Partnership
- Limited liability company (LLC)
- Corporation (including S-Corp and C-Corp)
There is no single “best” business entity type. They each have pros and cons that you will need to consider when choosing the right one for you. If you are unsure, you can speak with a lawyer about how each type could impact your new business.
2. Legal and Regulatory Requirements
Depending on your new business’s industry, there may be regulatory compliance requirements. This could include registering your business or obtaining licensing. Check with the state in which your business was formed and operates. Both could have governance authority over your business operations.
3. Business Structure and Governance
Create a structure for your new business. This will be the first hierarchy for authority and decision-making. Depending on the type of business entity you choose, this could be a single person (you) or several people (board of directors). Decide who will make the day-to-day operations decisions and who will need to approve long-term overarching decisions. For some entities, this could include shareholder or stockholder voting.
4. Taxation Considerations
The type of entity you choose will change your tax liability both personally and for the business. Choose a structure that will give you the lowest tax liability. Then, prepare for paying your taxes by setting up the necessary accounts. You may need to pay quarterly taxes throughout the year.
5. Financing and Capitalization
You may be lucky enough to fully fund your new business from your own financial resources. However, this isn’t the case for most people. Decide how you will source funding for your business venture. This could mean taking on debt or giving partial ownership. Consider all of your financial options before choosing one to ensure you choose the best option for your situation.
6. Employment and Labor Considerations
You may be your only employee when you form your business. However, once it grows, you may need to hire additional help. Plan for this by establishing a hiring process and preparing employment contracts. Review your state’s labor laws and the laws in any other states where you will have employees work.
7. Intellectual Property Protection
Your business will have intellectual property that you need to protect. This will include your business name, slogan, and logo. This is also protected if you create unique works like videos, pictures, or writing. Protecting these assets is a must to ensure no one uses them in a way that could harm your business.
8. Exit Strategies and Succession Planning
No one wants to think about their business failing. However, not all businesses will be successful. Having an exit plan in place from the start will make it much easier to dissolve things when you decide your new business is no longer working. Similarly, you should have a succession plan in place. This will be used when you decide to leave the business without closing the business. Having a succession plan is crucial because life is unpredictable, and you may be forced to leave due to changing circumstances. A lack of a succession plan often causes a successful business to fail.
Seek Legal Advice for More Business Formation Insights
Speaking with an experienced lawyer can give you more valuable business formation insights. Your first step will be to decide what type of business entity you want to form. You can then ensure you have any required licensing and certifications. Protect your assets by addressing managerial needs, financial responsibilities, and assets. Finally, plan your exit strategy. Having a contingency plan for when your new business doesn’t work out will make dissolution easier. As with all other areas of your business, seek out experienced professionals.
Schedule a consultation with our experienced attorneys to plan the formation of your new business entity.
