One of the most important elements of starting a business is creating your mission statement. Many entrepreneurs spend countless hours considering what they want their companies to stand for and what kind of image they want them to project. Creating a brand identity that evokes a certain impression or connection in customers’ minds can be vital to an enterprise’s overall success. However, some startups can be so focused on this aspect that they can forget the more concrete components of the business plan. Before you throw yourself into the intangibles of building a business, you need a solid legal foundation beneath your feet.
Choosing the proper framework for your new business can have as much to do with its success as any other aspect of your plan or concept. The type of business entity you choose can either open doors for you or put you at a severe disadvantage. With the right structure, you may have an easier time securing capital or be better equipped to protect your personal assets from liability. For example, many startups are structured as sole proprietorships. This type of entity is preferred by many because of its relative simplicity. However, this can become a problem if you run into debt or legal issues because it can allow your personal belongings to be fair game for seizure. By allowing your business’s assets to be mixed with your personal ones, a sole proprietorship structure also could make it more difficult to receive financing from a bank.
On the other hand, an S corporation structure gives you and your personal property protection from liability in many respects. The catch is that you’re required to follow strict rules about holding meetings and keeping corporate records.
For more information about the various types of business entities, including limited liability companies and partnerships, see the accompanying guide. It’s important to know all the options in order to make the best possible choice for your startup.