If you want to start a company, make sure you have a product or service to sell first. If the endeavor involves other people, you’ll want to incorporate with a structure that protects you and your partners, especially if one of your friends is clueless or litigious. Litigious is a French word meaning Asshole.
Incorporating costs less money than dinner for two at Chipotle. It’s fairly simple in the US and UK, and it doesn’t take much paperwork to keep it up to date.
While I’m not a lawyer and nothing on this site is legal advice, everything you’ll need to start your company is probably found on government websites. There are LLCs, S-corps, C-corps, B-corps and more, all of which have unique structures, levers and protections.
The most simple corporate structure is an LLC, which easily converts to more complex structures (S-corp or C- corp) when things heat up. By heating up, I mean an investor bought into your bullshit and wrote a check. Here are the primary company structures:
A Limited Liability Company has members who can’t be held personally liable for company debts. Hybrid entities, they combine the characteristics of a corporation with a partnership or sole proprietorship. With LLCs, you don’t have to submit annual paperwork and get migraines. Although it’s not the right structure for when you have stock holders, an LLC will quickly make you legit.
A Subchapter S (S Corporation) meets specific IRS requirements and is the way to go if you’re a small company that has friends and family as investors. With 100 shareholders or less, you’ll have the benefit of incorporation while being taxed as a partnership. It’s the cuter version of a C-corp.
The “C” in C-corp stands for cocaine. As in, you’ll need some if you want to get through all the paperwork before your next birthday. This structure is for serious companies with serious investors. It’s taxed separately from its owners and has all the bells and whistles to make your shareholders happy. 501 (c) A 501(c) is a nonprofit organization that doesn’t pay taxes, even if it’s a religion that does nothing but buy robes and maintain expensive real estate. To be a 501(c), you have to fall under one of these purposes: charitable, religious, educational, scientific, literary, public safety testing, amateur sports competitions, or preventing cruelty to children or animals.
The “B” stands for benefit. This is a hybrid that mixes the juicy greed of a C-corp with the good-will in a 501(c). You can show gobs of profit, buy islands and help others at the same time. Woohooo! This structure has the stock attributes of a C-corp and the tax benefits of a non-profit. It’s great for positive impact-missions that seek to benefit society, workers, communities, the environment and your bank account.
This is not a corporate entity. It’s a fancy term that means you and your business are married. It refers to the person who owns the business, who is the same person responsible for its debts.
There ya have it, the main structures to consider for your company. Choose wisely and keep it simple for as long as you can. Start with an LLC and convert into an S-corp or C-corp when investors arrive.
Do not over-complicate your life with 300 pages of incorporation and operating agreements. There’s plenty of time for this after your first $100K of capital or revenue. Plus, who has time for 300 pages? I can barely get through a children’s picture book.