There are a number of different structures to choose in incorporating your start-up, e.g. sole proprietorship, LLC, C-Corp. You can find good books to learn their tax and legal implications, like this one on Amazon: Tax Savvy for Small Business: Year-round Tax Strategies to Save You Money.
But not many discuss them from business perspectives. This is my personal views of the business situations that are appropriate to choose a certain structure. (I only cover sole proprietorship, LLC and C-Corp here, but there are also S-Corp and Limited Partnership. Please make sure you study them carefully as well)
So you should really think through, what structure would make the most sense for your concept. If your concept is on-line distribution of a low-tech proposition, many cases, you do not need to raise external money. Maybe, you can self-fund $10K in building an inventory and website, and start making revenues and profits. If so, LLC is probably a good choice. You can get a good tax benefit, you are protected from liability issues, and you do not need to have cumbersome corporate governance processes with the Board and Shareholders.
Basically, going into C Corporation is a different world from sole proprietorship or LLC. It will require the most established governance, reporting, and management structure. But if your business concept requires significant technology investment, capital investment, then, you may not have a choice than raising external capital. To raise capital from VCs or to aspire for the future corporate acquisition, C-Corporation is the choice.
In most States, if you are setting up a sole proprietorship or LLC, you do not need to hire a lawyer. In Washington State where I am located, I could do it in a day. But of course, it is important that you do a detailed study on tax, legal implications, before you do anything. What I wrote here is from purely business perspectives, but tax and legal matters could complicate your life.
In the coming blogs in this category of “setting up”, I will further discuss the followings:
- Sole proprietorship v.s. LLC
- LLC incorporation process