Why Business Entities Are Non-Negotiable
What’s going on? It's Daymond John, “The People’s Shark.” Today, I want to share a piece of wisdom that's been a game-changer in my journey but also crucial for every business owner out there: the power and importance of forming a business entity, like an LLC or Corporation.
You see, when I started FUBU in my mom's house, it was all raw passion and hustle. We were standing on the street corners selling our product. We were hustling to connect with the world’s biggest celebrities and entertainers hoping they’d sport some of our FUBU gear in their next music video or on the red carpet. We turned my mom’s house into a makeshift factory to keep up with the demand. We were very focused on sales and the offensive part of business.
But as we grew, I realized that passion alone wasn't enough. I needed structure. I needed protection. To be honest, I needed an affordable service like Rocket Lawyer so I wouldn’t make avoidable mistakes.
Look, I’m not an attorney, that’s what my friends at Rocket Lawyer do, but from my experience as a business pro, if you want to set the foundation for your dream business, forming a business entity absolutely needs to be at the top of your checklist. So, let me break down all of the benefits for you.
First, a business entity offers you Legal Protections and Resources, both personally as the owner and for the business in general. On the personal side, the right entity ensures Limited Liability Protection. Essentially, without a separate legal entity like a Limited Liability Company (otherwise known as an “LLC”) or a corporation, there could be unlimited personal liability for the business's debts and legal obligations. This means you are directly financially responsible and your personal assets - such as homes, savings, and personal investments - may be at risk to cover debts, contract disputes, lawsuits, and so on.
Not only are you personally protected, but the assets that your company owns will be protected as well, including patents, trademarks, and copyrights. In many cases, those assets might be the real value of your company. Take it from me. I didn’t reinvent t-shirts or jeans, but I had a trademark for “FUBU”, created a movement behind those 4 simple letters, and put that logo on everything. Do you think my company would’ve been worth billions of dollars if that trademark wasn’t securely owned by my business? The answer is clear - no way.
Moral of the story: an LLC or corporation provides a protective barrier. Your personal assets are separated, your business assets are secure, and you're not directly responsible for every legal hiccup. And, by the way, it’s easier than ever to set up thanks to the friendly and knowledgeable business services team at Rocket Lawyer. Millions of businesses have trusted Rocket Lawyer to help them Start Up Confidently, and you can too.
Ok, on to benefit #2. With an entity in place, you could have tremendous Tax Benefits and Flexibility. Different entities offer different tax perks and tax structures. For instance, an LLC offers pass-through taxation, where profits and losses are reported on individual tax returns. This can result in some serious tax benefits for your business, and Rocket Lawyer can help you with your taxes, too.
Benefit 3 might be my favorite…Easier Access to Capital. Having a formal business structure can make it easier to secure funding. Most serious investors and lenders will want to work with established entities rather than sole proprietorships or partnerships.
Look, I've been on both sides of the investment table but I'll tell you this: I know I’m not investing in a company that isn’t properly set up. Not only because it shows an investor that you haven’t taken care of the basics, but it could also make me and my assets vulnerable.
The next benefit, #4, is that an entity gives your business a Professional Image & Credibility. It tells your customers, partners, and even competitors that you're in it for the long haul. Also, a formal business structure will make it more attractive for potential employees to join your company. It offers a sense of stability and demonstrates that you are committed to the long-term success of the business.
Number 5, an entity provides a Separation of Finances. It keeps your personal and business finances separate. Not only does this help with making sure you’re crystal clear on how much money you and your business each truly have, but trust me, it'll save you a lot of headaches come tax season. And I mean a lot of headaches. There is nothing messier than a bank account full of commingled funds.
And the final benefit, an entity provides Ownership, Transferability, & Continuity. As much as I think I’m going to live forever and I’m always going to work on my business, we all know that’s not the case. Life's unpredictable. With an entity, your business can outlive you, providing stability and continuity for your family and employees. It's tough to think about, but really important. But on a lighter note, entities also make it relatively easy to transfer ownership through the sale or transfer of shares. This can be a crucial benefit if you plan to sell the business in the future.
Remember, every business is unique. Your choice of entity should reflect your goals and your industry. And if you're unsure? Consult with the legal experts at Rocket Lawyer. They offer affordable, simple, and personalized help that is trusted by millions of businesses. Plus, a Rocket Legal+ membership makes it more affordable than ever to get everything legal.
I know entrepreneurship can often feel like a lonely journey. But it doesn’t have to. The team at Rocket Lawyer is here to support you and help you start your business like a Pro.
Don't just hustle hard, hustle smart. Sign up for a free 7-day trial with Rocket Legal+ and get your first business entity for free when you purchase a Rocket Legal+ membership!
