In our first post in the series, we looked at why you should give serious consideration to bankrolling your startup from your own personal funds. It’s an option that’s often overlooked, but obviously not for everyone. This time, we’ll talk about your next easiest option — have a little help from your friends.

Who are they?
Broadly, we’re talking about your personal network — acquaintances close and not-so-close. Overall, we could refer to this as “family, friends and fools.” (A “fool” in this case isn’t at all witless, they’re just willing to invest on instinct and trust). Aside from being a phone call away, all of these sources have a few things in common that make them strong possibilities for obtaining your startup capital.

Confidence
Banks, lenders and other professional funding sources are in the business of making sure they get their money back with interest. To give them confidence, they may ask for credit scores, collateral and a concrete business plan. But with your personal network, lender confidence could come down to leveraging a single asset — your reputation.

Personal Investment
When a bank writes a loan, it’s all business. Money out to get money coming in. But when a friend or family member gives you a hand up, they’ll often measure their return on investment in your personal success. Business advice and emotional support just might be an unspoken bonus in signing a loan with them. In short, an investor that trusts and believes in you as a person is valuable beyond the money they lend.

Mutual Gain
It’s important to remember that a loan creates opportunities for both sides. If you’re starting a business you believe in, giving your personal network a chance to invest gives them a chance to share in the rewards. Whether they’re earning a fixed-percentage interest, a portion of profits or a piece of your business, funding through a friend can provide considerable benefits for all parties involved.

Considerations
As with any funding option, this route is not without precautions. Before engaging in a loan with a personal connection, you’ll want to make sure of the following:

+ You’re confident in the business — your lender is taking your judgment as collateral; don’t give them a fake.
+ The acquaintance can truly afford the loan — don’t let your family risk their own livelihood to help.
+ A legal agreement should be put in place — careful verbiage will give both parties the ability to make the agreement as stringent or lax as they’d like, but it’s imperative to document your agreement — not just for legal and tax purposes, but to preserve your valuable friendship.

If it’s done right, a loan from “family, friends or fools” might be the best option at your disposal. It’s simple, supportive and in the end — it just might make you both rich.

If you’ve made the decision to incorporate your business, you’re off to a great start (More on that in our last blog). But before you can even move forward with THAT, you’ve got another big decision to make — whether to incorporate as an LLC or INC. This “starting a business” thing isn’t going to be easy, is it?

We’ll do what we can to help. Let’s talk about how to choose one of these three-letter designations, and how that decision will impact your business in the long run.

First, the basics. INC is just what it sounds like — an abbreviation for Incorporation. So what does LLC stand for? That’s a “Limited Liability Corporation.” If you’re familiar with the advantages of “incorporating” (a general term that covers both the LLC and the INC), that may sound redundant, as the primary purpose of any incorporation process is to reduce the liability on the shoulders of the business owners. It’s true — in fact, the INC was once the only viable option provided by the State for designating a separate legal entity from the individual people running the business. But the LLC goes a step further — it’s set up to make things simpler, particularly for small businesses.

Here’s a few of the ways your decision between an INC and an LLC will impact your business:

Who calls the shots?
An LLC has Members and Managers. An INC has Shareholders, a Board of Directors and Officers. The greater hierarchy in the INC means more paperwork, but more possibility for varying levels of company ownership.

What do the rules look like?
An LLC is controlled by an Operating Agreement. An INC runs according to Bylaws + Minutes. An “operating agreement” is a simple series of declarations that clarify certain possibilities that may arise as the company grows and changes. Bylaws and minutes go to extra lengths to ensure a series of checks and balances can be carried out by all levels of ownership.

How do you file your taxes?
An INC can be filed as an S-Election or a C-Election. An LLC can be filed as either of these, but also adds the options for filing as a Sole Proprietorship (for one owner) or a Partnership (for more than one owner).

Who’s got skin in the game?
With an LLC, the employees are just that — they don’t have a stake in the company unless they are or become “Partner”. In an INC, on the other hand, there’s room for any number of Passive Investors to join your ranks, as well as numerous Partners at varying levels of control and ownership.

These are just a few of the many differences between an LLC and an INC. As you can see, this is a decision that will have a lasting impact on the way the government looks at your company and the way you do business. So take your time. Talk to your business partners. Get an outside perspective.

And finally — as always — don’t hesitate to consult a legal professional for expert advice.

When it comes to starting a business, your first question is probably “Why do I need to incorporate?” You might be surprised to find out it goes well beyond registering a name or putting your corporate flag in the ground. At its heart, incorporating a business is all about securing you and your loved ones. It’s kind of like creating an alter-ego in the name of your business — by day you’re a mild-mannered individual, but when you incorporate? Cue the fanfare!

When you file for Incorporation, you’re asking the State to recognize your new business as a new and separate legal entity from you and any other owners. It’s a legal process that encourages entrepreneurship by giving you a “shield” to protect your personal assets as you begin a new venture. So while you’re off taking the necessary risks of an entrepreneur — developing operations, making investments, signing with partners, and other heroic acts — your personal assets are safe at home.

Every start-up should incorporate, whether it be as an LLC or a Corporation. By doing so, the owners of the business will have their personal assets protected by a shield known as “limited liability”. Within the LLC or Corporation, owners can sign contracts, assume debts, buy real & personal property and open bank accounts. In time, the LLC or Corporation can even develop its own credit rating, ultimately freeing the owners from having to make personal guarantees for the business. The shield protects against corporate creditors as long as the business owners don’t personally guarantee a debt, loan etc. on behalf of the LLC or Corporation. But beware; the shield is not absolute.

In certain instances, the shield can be “pierced.” It’s known as “piercing the corporate veil,” and it’s the kryptonite to your superpower. If you commit fraud while acting on behalf of the business, commingle funds between you and your “alter-ego,” or fail to keep up with your corporate formalities — even seemingly banal tasks like taking the annual minutes for Shareholder and Board of Director meetings — you may open yourself up to being sued personally.

It takes long-term vision to hang on for the long haul. But before you set your eyes on “leaping tall buildings in a single bound”, make sure you don your cape and shield — protect yourself professionally and personally with a legal, State-filed incorporation.

Looking for a legal super-hero? Call Gil today to see what SmallBizLaw can do for you!

So you’ve decided you’re ready to run your own business.

That’s a tough enough call for most, but for you, it’s just the first of many. With every step down the road of entrepreneurship, you’ll face dilemmas that could break the average 9-5er. Now here’s a prime example. Would you rather:

a) put your blood, sweat and tears into starting your own business, or
b) take the risk of investing in one that’s already up and running?

“Starting a business” sounds as easy as flipping a switch, but it might be the hardest endeavor you ever undertake. Building a name, a client base, and a company will take unimaginable efforts. You’ll use time you never knew you had, money you never dreamed you’d see and skills you never thought you’d learn. But you’ll never be at the mercy of someone else’s past. At the end of the day, you can look back on it all and say what Sinatra said, “I did it my way.”

You might not be considering a buy-out for what sounds like a sensible enough reason — you don’t have the cash. But the fault in that logic is an important one — this business is bigger than you. It’ll take much more than just your own time, toil and money to make your business grow and thrive, and that starts at the beginning. A venture capitalist or angel investor might be one of the first and most valuable members of the entourage you’ll have to build around yourself to succeed. Also consider that though it may cost less initially, starting your own business is by no means cheap, and will likely meet or exceed the cost of a buy-out before you reach your goals.

With the challenge of the initial investment aside, buying a previously-owned business can be an attractive option — but make sure the business is a good buy. Are you buying into a solid foundation? A brand with equity? A great team? If the answers to these questions are yes, then this might be your best bet. There’s much less risk involved with buying an already great organization than trying to form your own — despite how dreamy it might sound to “do your own thing.” Dropping that ego might be a multi-million dollar move.

No matter which option you choose, the fundamental rules of running a great business are still the same. Plan thoroughly; it’s closest thing to predicting the future. Be ready to change your company to meet the changes around it; Darwinism works here — evolve or die. And always strive for perfection; you might just end up with excellence.