Managing a successful startup isn’t easy. According to the Bureau of Labor Statistics, about 20 percent of new businesses fail within the first two years, 45 percent fail within five, and 65 percent won’t make it through their first decade. Only a quarter of businesses make it to the 15-year mark. Startups can fail for a number of reasons, including inexperience, competition, changing markets, innovation in their niche, and sometimes just plain bad luck.
Many of these factors are outside of your control. For example, you can’t predict a sudden switch in consumer technologies rendering your product obsolete, but a bit of due diligence and careful planning at the onset of your business venture can go a long way towards increasing your chance of success. For many digital startups, the best way to start the journey to success is to form and incorporate as an official business. Officially incorporating your startup will help you sidestep a quagmire of issues related to murky ownership, complex taxes, and stock valuation.
Incorporating a Startup
When you decide to incorporate your startup, the first thing to do is to figure out what the legal structure of your business will be. Most of the time, your for-profit startup will either be an LLC (a limited liability corporation) or a corporation. In general, corporations are more expensive in terms of taxes and have to have a complex structure to stay in line with rules, but are more friendly to investors. LLCs, on the other hand, are more flexible with taxes, easier to maintain, and don’t have the structural requirements of corporations. If you’re not looking to court investors or expand to a huge empire, an LLC structure is likely the right choice for your digital business.
Next, you’ll want to do some research and choose how you’d like your startup’s profits to be taxed. Your corporate structure will limit your options here, but both common structures still give you some wiggle room to choose how you’re taxed. Finally, you’ll want to choose where you want to incorporate your business. In many cases, you can get a big legal or financial advantage by incorporating in a friendly state, province, or city rather than the place you actually do business in. As a digital startup, it’s a good idea to research how your place of incorporation affects things like court, taxes, and laws and make sure that you incorporate in the right state. Once you’ve decided on these key pieces of information, all you need to do is draw up a founders’ agreement, fill out some paperwork, and you’re good to go!
Don’t Hesitate to Get Some Help
These days, the best way to actually finish incorporating your startup is to hire a firm that specializes in creating businesses. Services like ZenBusiness, Inc Authority, and Northwest Registered Agent can help you through the forms, file everything for you, and maintain your registration year after year for a small fee. There are lots of reasons to use a service like this, including the fact that you’ll enjoy some limited anonymity due to the service corporation filing papers on your behalf.
The experts at these companies can help guide you through the process, advise you on your options, and get all of your paperwork in order in a matter of days. According to Northwest Registered Agent reviews, this process can take just a few days from the time you start filling out the form till your startup’s official incorporation in the state of your choice. While these companies all charge for their services, the time you’ll save by choosing one of these helpers will more than pay for the cost.
Why Incorporate a Startup?
The decisions you make when you incorporate your startup will help you avoid common pitfalls and stay successful. Knowing how you’re taxed, for example, can make a big difference when it comes to your daily accounting and decision-making. Having all of the paperwork drawn up will help ensure that your tax forms are in order and that your business will survive an IRS investigation with no trouble. As your startup grows, you’ll also expose yourself to the risk of legal action. If your startup isn’t a well-defined entity in a state with favorable laws, this can get messy, fast. Incorporating helps to turn your legal risk into something more manageable and defined while also ensuring that you’ve got some extra tools to defend yourself properly.
Finally, the founders’ agreement that you draw up with your co-founders will help keep things on an even keel and ensure that everyone knows who has what stake in the company. It’s incredibly common for startups to work for years under half-remembered verbal agreements. As each partner works harder and harder to keep the startup afloat, they’ll think more and more of their own effort while downplaying the efforts of others. This means that you can wind up in a situation where two or more founders think that they each should be entitled to well over half the company, which almost never ends well. A well-defined founders’ agreement ensures everyone knows who owns what and will protect both the founders and the company in the event of a disagreement.
Incorporate Your Startup to Save Hassle Later
While digital startups might do business on the internet, they still are subject to real-world laws, taxes, and disagreements. Incorporating your startup can give you a big leg up on potential future problems by solidifying your legal standing, setting up your tax structure, and defining which of your founders owns which parts of the company. By taking advantage of a corporation creation company, you can streamline this process and get yourself incorporated in as little as a few days.
If you want to beat the survival curve and build a business that succeeds long term, this simple step is an absolute must to get you past a number of difficult, complex hurdles. Once you’ve incorporated it, you’ll be a legal, defined business, enabling you to focus on decisions that matter.