Not sure what is the most optimal startup incorporation path for your business? Let’s find out more about the possible business structure options and legal entity types, how to incorporate a startup, and when’s the right time to do so.
Incorporating a startup may certainly pose challenges. How do you go through the process of incorporating a startup without missing out on any crucial regulatory compliance matters? And how do you strike a balance between ambition and regulation? It can be especially overwhelming for entrepreneurs with no previous legal expertise 📄
What does startup incorporation involve?
For one thing, navigating a maze of legal requirements. You have to choose the right legal structure, draft and file documents, and ensure that everything complies with various regulations 🤯
That’s why many entrepreneurs sometimes seek professional advice from a lawyer to make certain that they’ve got everything right. After all, business registration will influence various sides of the business, including compliance, personal assets, funding opportunities, taxation policies, and lots of other vitals. Bottom line: it establishes a solid foundation for growth.
What kind of legal entities do startups choose?
Most often, startup founders choose between:
🟡 LLC — is simple and offers flexibility in terms of management and taxes, yet could pose limits when it comes to accessing venture capital funding.
🟡 C-corporation — C-corps are subject to double taxation and have more complex management and reporting requirements; however, investors tend to prefer such types of entities.
🟡 S-corporation — isn’t subject to double taxation, but S-corps usually have shareholder number limits and some additional ownership and funding restrictions.
That was just a brief rundown, of course. Keep reading to learn all the details, how the three differ, the pros and cons of choosing them, and when to opt for each 👇