Before your business starts breaking even and achieving its full potential, it might seem wise to have a full liability of the company, together with your other business partners. This not only means that the proceedings of the business will be taxed from your personal accounts, but also that you will assume any credit liability that the company incurs. By incorporating your business, you can get to present your business as a legal and standalone entity, which will eliminate the personal liability you have over it.
When it comes to incorporating your business, timing is key. Incorporate too early, and you might have to start paying fees even before your business can break even or earn its first coin. Do it late, and you might have co-founder conflicts or lose some of your business’ assets. While the perfect time for incorporation is relative to your situation, doing it early is often the best approach.
Here is why you should consider early incorporation:
Protect Your Intellectual Property
Intellectual property is often something that sets you apart from your competition in your industry – it might be an app or website to name a few options. While it might at times be impossible not to create intellectual property pre-incorporation, it is often the best option to do so post-incorporation. This helps to eliminate the chances of losing your property.For instance, if a partner of yours were to leave your business, there is almost nothing to prevent a situation where they use your intellectual property to form a competing business.
Depending on the type of corporation you form, whether a C corporation, an S corporation or an LLC, you will decide how the proceedings of the intellectual property will be shared. Often, it is wise to minimize the development of intellectual property pre-corporation, which further makes it essential to incorporate your startup early to avoid delaying the development of key business assets.
Make Use of Sweat Equity
Startups might at times fail to pay their employees the rates that they deserve due to financial constraints. However, the promise that the company will turn out to be a successful one often makes most employees adamant enough to continue working with your business. One great way to motivate employees to stick to your side during your initial stages of development would be to promise them sweat equity.
The fact that they will own stocks in your company will sound inviting to most people, especially for a company poised for greatness, but empty promises are not always enough. If you take too long to deliver, you risk losing some of your valued employees. Luckily, early incorporation will allow you to offer your employees the sweat equity you promised among other benefits.
Protect Your Personal Liability
Entrepreneurship is never a straight path, and problems are never that far from your business. In case of a financial issue pre-incorporation, you and your partners will be liable to the issues. If you default on a business loan, your personal property might be affected as creditors look for ways to get back their investment.
While incorporation will help eliminate any personal liability, signing significant contracts with creditors pre-incorporation still means that you will be personally accountable for the contract. As a result, it is wiser to incorporate early to reduce your liability.
Avoid Co-Founder Disputes
Co-founder disputes have a center stage role to play in the derailment of most business ventures. Some might feel that they are entitled to more ownership of the company than the equity split allowed them. Incorporation simply helps to ease these disputes.
Early incorporation, on the other hand, ensures that everyone is on the same page concerning their ownership from the start. Furthermore, there are fewer assets to dispute over in the beginning of the business than later.
There are multiple benefits that come with having your business as a standalone legal entity. These perks will further be dictated by the type of corporation you choose to turn your business into. Choose your path wisely to solidify the future of your business.