When I decided to found a business, I had no idea how much reading it would involve. My stack of books is huge and growing – subjects include programming, business plan writing, sales and business structures. This is in addition to following industry blogs and competitors to keep up with what is going on.
The main thing on my mind this week is setting up our company to be official. The most important thing is establishing agreements with Josh, my cofounder, up front. While it’s tempting to dive right into the product, important topics like funding and equity should be established as early as possible. After sifting through many books on the topic, my recommendations are:
Business Structures: Forming a Corporation, LLC, Partnership, or Sole Proprietorship (Entrepreneur Magazine’s Legal Guide)
by Michael Spadaccini
First, this book clearly lays out options for organizing a company (corporation, LLC, partnership). Then, it has chapters for each option with more details on setup and operation.
Form Your Own Limited Liability Company
by Anthony Mancuso
This is an oustanding book – clearly written while at the same time the most detailed. Across the board, the recommendation for young companies is to form an LLC (limited liability corporation). This has the tax benefits of a partnership (revenue is not taxed twice like in a corporation) without the liability risks. It starts by explaining the benefits of an LLC versus other options. It has a chapter describing taxes under an LLC. And it walks you through filling out the paperwork and creating an operating agreement – complete with the forms for each state (tear out forms in the appendix and also forms on CD-ROM).
Where I’m stuck is that for the first 6 months, we will have no revenue and will not be taking investments. Our product will only launch at the end of this period. An LLC is filed with the state, so then it requires filing a tax return, which requires hiring an accountant, etc. To me, this seems premature, so maybe a partnership is all that we need (what is our liability risk without revenue or a product?).
I have had no luck finding case studies from other internet startups. How have successful startups managed this process? I have been to multiple startup conferences and have not found this topic addressed. Great topic for anyone presenting in the future.