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When you’re first starting out it might not always seem clear why you should create a company. In this video, we cover the basic advantages to creating a legal corporate entity and how it can protect you and your business.
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Now that you have been in business for
0:01
a while, you should think about creating a
company.
0:02
A company is a legal entity created under
state law that provides numerous
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advantages, like opening a bank account,
purchasing property, and
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entering into contracts with other
parties.
0:14
Companies are also structured to help with
issues that arise in
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the due course of business.
0:19
In this video, we'll cover most of the
common advantages for forming a company.
0:21
Keep in mind though, I'm not a lawyer, so
everything that we talk about is for
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informational purposes only and not for
the purpose of providing legal advice.
0:29
Let's start with founders.
0:34
If there's more than one founder for an
idea or
0:36
organization, it's always a [SOUND] good
idea to legally form a company and
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split up the equity or ownership of the
idea between the founders.
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This prevents any misunderstandings among
the founders and
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helps avoid any argument that may arise
later on.
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[SOUND] If one of the founders comes up
with any intellectual property,
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assigning it as a property of the company
is the best route to go.
0:56
[SOUND] We also need to consider how we
hire and pay people.
1:00
If we didn't have a company, in the event
that we couldn't make a payment,
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we would be personally responsible and
1:07
these contractors could force us to pay
from our personal bank accounts.
1:09
Having a company allows the contractor to
enter into
1:14
an agreement with the company itself.
1:17
That way, we protect ourselves from any
liabilities that arise in
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the due course of business.
1:23
Most entrepreneurs don't have a large cash
pile to pay off third parties with and
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they choose to partially compensate these
groups by granting stock or
1:29
equity in the company.
1:33
The easiest way to do this,
1:35
if we go down that route, is to issue
equity in the company's name.
1:36
[SOUND] If you have really big plans for
your business idea, then
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incorporating will serve you well because
it will let the company live on forever.
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Depending on the type of company you form,
[SOUND] incorporating will protect you or
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any other stockholders against personal
liability.
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This means that if you owe your creditors,
but can't pay up,
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the creditors legally won't be able to
take any of your personal stuff or
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force you to pay because the company
exists as a separate entity from you.
2:03
Now, this goes back to compensating any
third party.
2:07
You never want to owe them personally
because then they can
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take legal action against you.
2:13
If your company owes them, they can seize
your company's assets, but that's it.
2:16
A company should generally incorporate
before launching a product or
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service due to the potential liability
issues as the risk of
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liability to a founder increases with
customers or use.
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While the reasons to incorporate are
plenty, remember that they involve out of
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pocket costs and ongoing tax and other
filing obligations.
2:36
Also, if you, as a founder, are currently
employed by some other company,
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make sure that there are no issues with
you starting your own company on the side.
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There're many incorporation services out
there that do the work for
2:49
you and allow you to incorporate with
ease.
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But just remember, if you have any
questions specific to your situation or
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are unsure about anything, it's always
best to consult a lawyer.
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I'm not going to cover how you can
specifically create a company
3:04
because depending on where you are in the
world, that can vary.
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Instead, look up all the different
services that can help you incorporate.
3:10
I've listed a few of them so you can get
started.
3:14
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