This article focuses on practical approaches for entrepreneurs. It takes into consideration time and monetary costs, in advising entrepreneurs not to incorporate unless:
- Your company’s net worth is over $100,000.
- Your company is getting funded by investors.
- Your company is dealing in a business that has a high risk of liability.
I think these are good simple general guidelines for entrepreneurs.
These guidelines are very helpful for entrepreneurs. I can imagine an entrepreneurs spending a lot of time and money in the early stages of a business trying to look like a legitimate business rather than develop their product or service. And if the venture fails, all of that time and money would be wasted. As lawyers, it is interesting to see the tension between advising clients and making money where Lawyers may encourage entrepreneurs to obtain legal protection when the entrepreneur may not be at the point in the business venture.
This compliments an article I posted regarding the Small Business Innovation Protection Act. The legislation was criticised as being misleading and encouraging small businesses to obtain patents. This is definitely not a necessary tool for them unless the above three guidelines were to apply to their situation. An ideal, preferable solution would be to provide a government programme that would sponsor legal defence for small businesses attacked by patent trolls. This hypothetical programme could similarly sponsor trademark litigation. Time and cost are the most valuable resources in a start up. While entrepreneurs should definitely be informed about all these tools that can protect their business, they should not sacrifice the time and cost going towards their product or service for a patent.
Great article. I think some scenarios will still fall outside of these guidelines.
“The benefit of incorporating is the limited liability protection.”
Certainly some entrepreneurs are going to have other investments that may lead them to move through this process sooner than at when the guidelines suggest to incorporate. Either way, still well thought out tips.