Owning a startup sounds like a dream for many, but those who’re in the business know that there’s a lot more than meets the eye.  You have to give your blood, sweat, and tears to your business as you continuously juggle the marketing, management and financing activities of the day. It requires a lot of hard work and commitment, but once the start-up takes off, once you start living the dream, every minute and every penny you invested into your business … it all becomes worth it.

Amazing right? But hold on a second…

Now I don’t want to sound like a party pooper, but what if something doesn’t work out? What if your numbers don’t add up? What if you have a falling out with a client? What if you accidentally violate the trademark or copyright of a competitor? Do you have liability protection in place?

How can I get Liability Protection?

You can protect yourself against liability by turning your business into a separate legal entity. You can either do this by changing the legal business structure of your business to a Corporation or you may form a Limited Liability Company (LLC). Both of these business structures come with many added benefits such as tax savings, added credibility and professionalism, perpetual existence and of course liability protection.

Corporations and LLCs have many similarities, but here are a few key differences that set them apart:

Raising Capital

Corporations raise capital by selling shares of their company while LLCs sell membership interest.

Liability

Both corporations and LLCs provide their respective owners with liability protection; however LLCs have an edge over corporations in Texas, as they protect their owners against outside liability i.e. liability of other members in the company.

Flexibility

LLCs win on this one as well; they’re known to be extremely flexible. Corporations are not inflexible either, but they’re not as flexible as LLCs.

Formalities

LLCs are designed to be relatively less formal compared to corporations. While LLCs may not follow rigid formalities like maintaining minutes of meetings, having corporate shareholders and directors, and maintaining records of all accounts and books, corporations must adhere to all these responsibilities.

Taxation

There is no specific tax classification for an LLC. It may be taxed like corporations (either C or S), sole proprietorships, or partnerships …. whereas corporations do not enjoy the same options. They can only be taxed as either a C or an S corporation.

Management

A corporation must have directors and officers, while an LLC can function without them as well. Members of an LLC can choose the management style of their company. They can manage their LLC themselves, or they can designate outside managers to govern the LLC.

You can learn more about this topic, and compare different business structures through many online resources including this review of LegalZoom.

Whether you choose an LLC or a corporation, you’ll have to go through lots of red tape before your firm can become a legal entity. Starting up a business is hard enough as it, and it definitely doesn’t make things easier if you have to go through countless pages of legal jargon to protect your assets. But you can’t overlook liability protection either – it’s not wise to drive without a seatbelt on, is it?

Caught between a rock and a hard place? Well, not to worry. There’s a pretty simple solution. Let someone else take care of the legal process for you.  The time and effort you save yourself can be invested into the more interesting and the more important affairs of your venture.