Common Questions about Entity Creation

Entity Creation: The First Milestone

Entrepreneurs face a ton of legal questions when it comes to entity creation, such as “When do I form my business,” and “What entity do I need?”  Not to sound cliché, but it depends. And since entity creation is the first big milestone, having the right entity at the right time is paramount. I am prepared to guide you through this crucial time for your new company, but in the meantime, please review the following information, which answers common questions about entity creation.

Why do I need to form an entity?

Two reasons: 1) limitation of liability and 2) optimization for potential investment. When you operate without a business entity, you are unnecessarily taking personal responsibility for all of the actions of your business. That means if something goes wrong, your personal assets are on the hook. The proper business entity, and its continued maintenance, provides liability protection. That protection also attracts investors, since they can also invest without taking on personal liability.

When do I form my business?

The short answer is the earlier the better. The long answer is you should have a business entity in place before you enter into any verbal or written contracts for the benefit of your business. This even includes verbal agreements with business partners or transfers of money or property of any sort.

What entity do I need?

Much like the path to success, there is no one-size-fits-all answer. It truly does depend on your vision for the company. A limited liability company is the most common structure, and many lawyers use it by default.  However, having the wrong entity can scare potential investors away, so it is very important to make sure you have the right one. I will work with you to design a custom entity structure that fits your vision.

I can form an entity online—why should I hire an attorney to do it for me?

Creating the entity and optimizing your entity are two entirely different things. Optimization starts with entity creation itself, since there are questions that must be answered properly in order for your entity to function as desired. There are also ancillary documents, such as articles, operating agreements, bylaws, founders agreements, and meeting minutes. Investors are going to look for the proper configuration of these documents, so it is important to get a startup attorney involved right from the beginning.

I already have an entity and corporate books. Is that good enough?

Maybe. But when it comes time to pitch your company to potential customers or investors, you should not bet the future of your business on a “maybe.” Even if you already have an entity and ancillary documents, it is a good idea to hire a startup attorney to review it for you.