Structuring the Entity

In the venture I find myself in, so far it’s been a great experience of learning new things. Starting the idea for a business is a simple part, but the recent articles that I’ve read about starting a business may have skipped over the legal paperwork side that needs to be done in order for you to be protected in case something goes wrong. I found myself in that situation when me and my co-founders decided to step forward with a business idea and start executing it.

One thing I can assure you is that it’s costly but very worth getting the legal structure taken care of by a lawyer that is familiar with the field. All of the founders get along but when the decision of how much of the company’s share-hold came up, we all brought a different side of us out. It took a few days to come to an agreement if it’s the best we all get equal shares or have one founder getting a little more. The operating agreement alone seemed so overwhelming that it consumed most of our time. Upon being finished, the bylaws and other legal matters had to be taken care of especially deciding what our exit strategy would be. We did however end up coming to agreement and worked things out correctly so that everyone is protected in case the idea doesn’t work out.

Having being done with the legal paper work side of the business, I’ve learned one of the foremost lessons to always set up a restricted stock purchase agreement with schedule vesting. This secures everyone especially the business in case one of the founders decides to leave early on. There won’t be any fighting going on about how much one should get because they left the business early to start another venture.

But again, a lawyer is helpful in setting up this case. There are ways to negotiate prices that can best serve you. A flat-rate fee of $2,000 is the average cost of having an attorney set up all the incorporated legal structure for the business. $600 for an LLC depending on what state, although in most cases, this can be done without a lawyer. But always seeks advice from an attorney that is familiar with the field.

Another tip I’ve learned is to do some research on what entity is best fit for your business you’ll be starting. Aside from speaking with lawyers, find events/articles that go over the pros and cons of each business entity and most important, the tax side of things (CPA is the best thing to guide you through). There are lots of videos online as well that go over the legal structure. A recent video I’ve watched covered over the mistakes a founder makes when setting up the business structure by Scott Walker.

I consider it very important that if you’re planning to launch a business, make sure you get the right protection you need. Once it’s done, then all systems are go. But what if you don’t have the funding to cover the attorney fees? From the advice I’ve received of people who have gone through this phase, this is what they stated me: “If you have $1500 dollars that you can only invest in legal fees, tell your lawyer “This is how much I have, what can you do with this much, to help me get started setting up my business?” They will find a way to help you.”

I’m sure to hope this helped as much possible when you decide it’s time to set up your legal structure. There are resources that can help you with more information towards structuring your business. The SBA are always there to give small business resources that are sure helpful and SCORE as well.

What can we learn from setting up the legal drafts of the business? Was it frustrating for you as well or did you go through it rapidly? What advice would you give out to those who don’t know about the legal protections of the business?

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