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How Should I Structure My Technology Start-Up?

by Melissa Rager

So you came up with a great idea for a web design or software business.  You’ve thought about the product.  You’ve identified the customers.  You may have even raised some start-up capital.  After all that, did you put any thought into the type of entity under which your business will operate?  If not, perhaps it’s time you revisit this important decision.

The first aspect of your choice is the legal protection it will afford you and your business.  It is always advisable to consult an attorney when organizing an entity to operate a business.  They can explain the options available and help identify a structure that is most advantageous to you.

In addition, there are several tax consequences to the decision of entity type.  It is important to consider these consequences before operations begin.  The following are some of the questions you will want to ask yourself when making this important decision.

  1. Am I going to have other partners in the venture?
  2. How will I (and my partners) be compensated for our services?
  3. Is it most important to make the business attractive to outside investors?
  4. Do I understand how the burden of Self Employment tax works?
  5. How long do I want to be involved in the business?
  6. Do I want to have any key employees or family members take over the business when I get out?
  7. Will I be operating in multiple countries, states, cities?
  8. Do I anticipate substantial losses in the start-up period?

The answers to these questions can help you determine the most tax-favorable form for your business to take.  Not sure what the answers are?  Maybe it’s time to have a talk with your tax advisor.  Putting off this important conversation can often put you in a difficult position down the road.  It’s your business.  Get the most out of it.

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