You have a job interview, or a wedding, and the best that you can scrounge up from your closet is a pair of chinos. You need a suit on a tight budget. Would you go to Armani and purchase a custom suit? Sure, you would like to – but do you need it? Chances are that you would walk into a nearby Walmart or Target and buy an off-the-rack suit. The only adjustment that the tailor might make is to shorten the pants. It wouldn’t fit quite like an Armani, but it would work fine for the occasion. You would have an awesome time at the wedding, or conduct a killer interview. As an entrepreneur starting a new company, you also need to keep in mind the suit analogy.
You might read about sophisticated corporate or LLC organizations, equity arrangements and tax structures on the web, or hear about them from your seemingly sophisticated friends. Your partners might have attended conferences, or were pitched by lawyers or accountants, trying to sell them on the sexiest, most innovative legal structures for your new business. They might even suggest to you that accepting a simple corporate or LLC structure will make you seem unsophisticated, unfashionable.
Don’t be taken in by the hype. Simple, tried-and-true legal structures for your new company will work just fine. They will allow you to focus on the substance of your venture: how to create a successful product, create a great management team and develop a large market. It’s the substance, and not the form, that will define your future. Sticking with an off-the-rack corporation or LLC will be cheaper, quicker and simpler. It will also enable you more easily to raise your angel and venture financing. If your venture truly becomes a phenomenal success, you will be able to adapt and transform your corporate structure to maximize financial and business flexibility, incentivize your team, and minimize taxes.
However, just as in the case of ready-made suits, there is a difference between junk and quality. Professionals who focus on early stage companies will help you set up a simple structure that will serve you well in the long term.