A very common question I get from entrepreneurs involves the timing of actually incorporating or organizing (depending on whether a corporation or LLC is formed) a formal business entity through which to conduct business.  There are lots of factors to consider. I recently read an interesting “decision matrix” by Ryan Reynolds, which takes into consideration factors such as:

• The number of founders.
• The degree of risk of experiencing some sort of lawsuit.
• Whether your start-up is seeking outside fundings.
• Whether and what sorts of contracts you are signing.

I tend to agree with this these factors for the most part – at least as a way to quantify the need (for those people that like to quantify things before making a decision).   Typically, though, I will recommend that a business incorporate or form an LLC as early in the process as possible (assuming the cost is not prohibitive – and it shouldn’t be so long as you find counsel that can help you do so for a reasonable fee).  For entrepreneurs that are serious about their business endeavor, forming a business entity is usually the first step toward making things “official.”  When someone goes through the process of organizing an LLC, opening a bank account, retaining an attorney, retaining an accountant…etc…what was once an abstract business plan or hobby becomes more tangible…and a platform is created from which to focus and launch the business (not to mention the obvious legal advantages such as limited liability that are discussed elsewhere on this blog).   What it really boils down to is this – when you are serious about starting up and executing a new business, that is when you should seriously consider spending the time and money to incorporate or organize a formal business entity (corporation of LLC).

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