4 Pressure Points to Incorporate your Business

While businesses are formed out of ideas, you would need to register/incorporate the entity to ensure its proper legal standing. Metaphorically speaking, incorporation is not the end of the story, quite the opposite in fact. There are a few basic things that you need to have the answers to:

  • Who are the target customers for your products and services?
  • What is your market positing?
  • How is your revenue timeline structured?
  • Are your funding requirements in place?

There are no fixed answers to any of these questions. This is because there are several forms of businesses today apart from just brick and mortar stores. For instance, we have businesses that function only out of the internet, such as e-commerce platforms and tech start-ups. For instance, while starting a traditional retail store, you need to open your business before you open the doors to your customers. However, a tech-startup might function differently. They would spend months developing their prototype and models and won’t open for manufacturing or sales until then. Here, the timeline for incorporation might be extremely different compared to a traditional store. So, depending on such factors your timeline for incorporating your business would vary. For instance, if you have no revenue models set, from where are you going to fund your development activities?

1.     Understanding Revenue Timelines

Incorporation is a legal and statutory process that takes times and also uses financial resources. So, it cannot be the last minute formality in case you plan to have the revenue ball rolling from day one. Also understand that a company has to be incorporated in order to enter into employee contracts, vendor agreements, and other such contracts. To accept any form of revenue into your coffers, you need a bank account, for which you would again require your incorporation documents.

2.     Is incorporation Compulsory?

If you want to start a company, then you need to incorporate your business. However, if you simply want to get your own business rolling, then you can also establish yourself as a proprietor business. You don’t need incorporation documents to sell your products and render services. There are several businesses in the US that continue to function as sole proprietorship entities. Once your business grows and you are confident about your growth trajectory, you can convert your business into a full-fledged company

3.     Approvals from the Government

There are certain products that need to have special government approvals. For instance, you would need a pre-approval for defense-related articles that are specified in the United States Munitions List. Or you might need a US FDA approval. In such cases, incorporation becomes essential to secure these approvals and licenses.  Very few businesses need such pre-approvals, in case your business model doesn’t depend on approvals, then you can delay the incorporation process until you are actually ready for product development or manufacturing.

4.     Need for Funding

Many private companies and start-ups are looking for additional funding from venture capitalists and angel investors, and you would need incorporation documents to further make funding contracts and documents. Also, if you want to go for seed funding, it wouldn’t be possible without proper documentation. For instance, only a registered business can have a share capital and allot shares.   

Summing Up

When a company is incorporated, the ownership of the company will be divided amongst a few people such as the founders and investors. It is possible that as you add more investors, your own holding and equity in the company diminishes. Unless you hold a majority of the holdings, you really can’t establish your control over the business.

In case you want to remain the sole owner and don’t want to relinquish control, you have to be careful about the funding ventures of your company or elect to function as a sole proprietorship.

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