In many aspects of business, timing is everything. You’re in this to generate revenue and to contribute useful innovations or services to your industry. But you must also protect your own interests against the various risks of business ownership.
Balancing these two desires means that you must choose the right time to incorporate. You don’t want to invest too heavily in startup costs before it’s necessary to do so, but you don’t want to wait too late and miss out on certain opportunities. The following considerations can help you decide when the time is right to incorporate your business.
When you hold a clear vision of your company’s future and possess the means to incorporate early, doing so can prevent many of the common problems that plague startups. The pros of early incorporation include…
Protect your “sweat equity”, or the amount of work you put into the early stages of business development.
Ensure that you see eye-to-eye with other co-founders from the beginning, helping you all to avoid delays and conflict from disagreements or misunderstandings.
Establish rewards, such as a promise of future shares, for onboarding employees who remain loyal throughout the process of founding the business.
Protect your intellectual property, especially if a partner leaves the company.
Secure third-party funding
Ready your company for acquisition if you anticipate that step being part of your company’s future.
Protect your personal assets from liability issues.
On the other hand, there can be reasons to delay incorporation, and it might even benefit you to do so. The pros of waiting to incorporate include…
You’re a sole proprietor with a clear plan and no intention to expand the business.
Your business serves as a “side gig”, especially if you intend to remain the sole employee.
You doubt your ability to follow established corporate protocol, which would put you at risk of liabilities.
You’re uncertain of how long the business will remain afloat.
Of course, what you decide today might not remain the right decision next month or next year. Even if you’ve decided against incorporating for now, the future could bring surprises. If at any point your profits dramatically increase, you need to hire employees, you face liability concerns, or you wish to attract investors, it will be worth your time to reconsider incorporation. Whether you’re ready now or think you might be ready in the future, our business planning attorneys are available to consult with you. Give us a call, and we’ll help you decide if incorporation should be the next step for your business.