5 Corporate Structure Tips for Businesses
In the early days of a small business, it seems like the decisions just keep coming. When critical choices that affect day-to-day operations need to be made, it’s hard to think about big-picture concepts like corporate structure. It is, however, important to set aside a little time to think about long-term strategy. These five tips will help position you for success if you get to them early.
Be Smart When You Name Your Company
Naming your company is a personal decision. Consider this from a corporate structure standpoint: if a bank sees your business’ name on an application, will it turn them off? Obviously offensive or strange names are problems, but banks are also less likely to lend to certain industries. Even if you are a real estate company, for example, leave “real estate” out of your name. Don’t inject any preconceived notions if you can avoid it.
Become an Operating Entity
Sole proprietorships are easy to set up in the short-term, but lenders and investors may see them as a single person looking to get in and get out. If your corporate structure is an LLC or corporation, however, they will take you more seriously as a business that’s in it for the long haul.
Set Up a Holding Trust
One of the key benefits of a corporate structure is that, when set up properly, it shields your personal finances from your business liabilities. The key phrase is “when setting up properly.” You need to set up a trust to hold your operating entity. It has some cost associated with it, but it will protect your personal assets if your business hits hard times.
Split your IPs from Your Business
Believe it or not, it’s a good idea for your business not to directly own its intellectual properties. To illustrate why we’ll use an extreme, but not impossible example. Say your business is sued for “everything it has.” If you lose, for whatever reason, you lose everything it owns, including web addresses and phone numbers (technically IPs.) If, however, a trust is set up, and it licenses these items to the business, they will be protected while you rebuild.
Create a Business 401(k)
Lastly, a self-directed business 401(k) is a great way to legally shelter money and create a rainy-day fund with huge tax advantages.
These simple tips may seem like pain during the hurricane of starting a small business, but the may save you from extreme hardship in the long run,