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Business Structure and Financing

The most common business structure is ownership, partnership, and company. Ownership is only a business of one owner. This is the most common form (in the order of 70% of all businesses) because it is the simplest and most cheap to start.

The partnership is basically ownership for many owners. Most are general partnerships, where each partner is held responsible for other partner actions. Limited partnerships allow for general and limited pairs; Limited partner liabilities are limited to their contributing capital.

If you choose to go to business with a partner, be sure to set up a formal and written partnership agreement. This must overcome the contributions that each will be carried out for partnerships, finance and personal; How business benefits and losses will be divided; salary, and financial rights of each partner, and; Provisions for ownership changes, such as sales, succession, or desire to bring new partners.

The corporation is a legal entity, separate from the owner. This is a safer and better defined form for prospective lenders / investors. Merging is considered to limit the obligations of the owner, but personal guarantees are generally needed every time there is exposure to accountability.

The traditional form is called C-Corporation. S-Corporation is often preferred as a start-up form, because the expected losses at the initial stages of the business can be applied to the return of the owner’s personal tax. Other forms include LLC, or limited liability companies; Trust, often for certain time frames or goals, and; Combinations of legal entities such as “cages” and joint ventures.

Ask for legal and tax advice from professionals regarding which forms are most suitable for your efforts.

Structure of ownership and capitalization

After the legal structure is decided, the issue of distribution of ownership, and risk distribution and benefits can be addressed. The main decision to be made is whether entrepreneurs will finance businesses or whether there is a need for other stakeholders, and whether these stakeholders will become investors or lenders or combinations.

Financing our business by borrowing our fixed costs, but does not make claims outside the amount of debt no matter how much our success. Standards for debt financing are generally very difficult to find by startup; Lenders generally do not want to share risks with you. If the lender makes you fall, ask them for certain reasons. If the reason cannot be resisted by this lender, the insights obtained can be used to strengthen the presentation to the next.

The advantage of selling ownership shares to increase capital, referred to as equity financing, is that investors share business risk; This lowens costs because there is no debt service to be paid. However, investors also share rewards, and entrepreneurs must be careful not to sell equity too cheap.

What should we offer prospective investors? For the most part, their main interest is with returning their investment, through dividends and awards. There is a bit of attraction for most investors as a long-term minority owner in the business held tightly, so some ways “cash,” must be offered, such as provisions for corporate repurchases or public offers.

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