If you are starting a new business, chances are that you will raise money for your startup company from your friends and family members.
After exhausting your personal savings, you will need to find other creative ways to fund your business. Tapping into the “Bank of Friends and Family” is one popular way to raise money for your company.
However, raising money through friends and family can be very tricky. To keep your business and personal relationships on the right path, it is important that you know the right way to finance your company with friends and family investment.
The Pros and Cons of Raising Money From Friends & Family:
- Availability – It is easier to raise money from people who already know you and support you than it is to raise money from outside investors.
- Flexible & Favorable Terms – Friends and family members may be more willing to give you more flexible and favorable terms and there may be less negotiation required to secure the financing. Also, friends and family may be more understanding about your personal business situation than outside investors.
- Speed to Money – Raising money from friends and family tends to be a much quicker process than other financing alternatives.
- Risk of Relationship Damage – If you don’t communicate properly or provide your friends and family members with sufficient information about their investments, then there is a big risk that these important relationships could turn sour later on when the investments don’t turn out well.
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If you are starting a new business or launching a new product or service, chances are that some people will doubt the path that you are on or perhaps have negative things to say about your new direction.
Starting a new business is hard enough by itself. So what do you do when family members, friends or business colleagues start to challenge or throw cold water on your new opportunity?
In this week’s video, I provide 5 strategies to help you deal with the “doubters,” so that you can focus on making your business great.
5 Strategies to Help you Deal with the Doubters:
#1. Know Your Purpose and Stay Grounded:
- Develop a mission statement or set of company values to help you focus on why you are pursuing this new opportunity.
- Step back and reflect on your underlying purpose to keep yourself grounded when dealing with negativity or doubts.
#2. Remember that Talk is Cheap:
- A lot of people talk about taking action without actually doing anything. Remember that you had the courage to take on this new opportunity and you are the one taking action.
- You should feel good about the new path that you have created for yourself and about your ability to step out and take chances.
If you have started a company or are thinking about starting a company, at some point you will probably need to raise money for your business.
This past Monday, new securities regulations went live, which now can help you reach more potential investors for your business through general advertising and general solicitation of potential investors.
In this week’s video, I provide an overview of these new regulations and how the changes significantly affect your ability to raise money for Your Great Business.
Key Considerations – Before you begin to raise money through general advertising and general solicitation, consider the following:
#1. While you can tell everyone, you just can’t sell to everyone:
- Although you can tell everyone that your company is raising money, you only can sell to “accredited investors” who meet certain financial tests.
- You also will need to take reasonable steps to verify that the investors truly are “accredited investors.”
#2. Make sure that you comply with the filing requirements:
- Your company will need to file a Form D with the SEC and check a box indicating that your company is using general solicitation for the offering.
Do you have a solid business idea, but you are unsure which legal structure will best carry your business forward into the future?
One of the biggest decisions that you will face when starting your company is whether you will form a Limited Liability Company (LLC), a C-corporation (C-corp) or an S-corporation (S-corp). Choosing the right entity structure from the start will help make sure your company is set up for success now and into the future.
When speaking to entrepreneurs and founders, I have noticed two issues that come up all the time. First, many people are misinformed about which type of entity structure is best for their business. And, second, they do not take the time to dig in to understand how each type of entity will affect the success of their business.
In this video, I provide an overview of several important considerations to help you narrow your choices when deciding what type of entity to set up for Your Great Business.
3 Key Considerations:
#1. Money – Consider future financing and investment opportunities:
Seed Financings and Friends & Family Rounds:
- C-corp: Gives you the most flexibility because there are not restrictions on the number or type of stockholders that C-corps may have. Investors are familiar with the corporate form, as well as the financing documents and terms that are typically used in Seed and Friends & Family financings.
- S-corp: Functions the same as a C-corp, however, is limited to the type and number of stockholders allowed. For example. S-corp stockholders must be individuals and U.S. citizens.
- LLC: If you start to take on more than a few investors, the operating agreement and LLC structure can become complicated and costly to put in place.
Are you starting a new business and have heard that you need to incorporate, but do not understand why or how it will help your business?
Or maybe you have already formed a corporation, but you’re not sure what you need to do next.
In this video, I provide 8 important reasons why you should incorporate and how it can help you create Your Great Business.
8 Important Reasons Why You Should Incorporate:
#1 Create Value
- Collect and capture the company’s “secret sauce” initially and overtime.
- Founders need to contribute all of the “secret sauce” to the corporation at formation.
- You will need to put agreements in place to make sure that the company’s intellectual property and developments are properly assigned and owned by the company.
#2 – Ownership
- Keep track of the company’s owners for corporate decisions, financings and the future sale of the company.
#3 – Raise money
- Raise money by selling shares to finance the continued operations and growth of your company.
#4 – Management & Control
- Organize your business with a formal corporate structure with stockholders, a Board of Directors and corporate officers.
- Motivate management with equity incentives and hold them accountable.
Are you starting a new business but feel like your efforts are stalling?
Or maybe you feel overwhelmed with too much to do and you can’t get your new business off the ground?
In the video below, I provide four tips to help keep your new business on track, so that you can continue to advance and create Your Great Business.
#1 – Take Consistent Action on a Daily Basis to Move Your Business Forward.
- Move your business forward by taking consistent action every day.
#2 – Focus on Small Steps That You Can Do Now.
- Focus on bite-sized, actionable steps that you can do and get done now.
- Write down 5 immediate priorities for your new business.
- Make sure that they are “doable” and then select one of them and do it right away.
- Then, select the next one that you will complete tomorrow.
Here are the 10 million reasons: Down the road your C corporation could help you save taxes on up to $10 million when you sell the stock of your company.
Let’s go back to the beginning – you are starting a new company now and trying to figure out whether you should form a limited liability company (LLC) or a corporation. And, even if you decide to set up a corporation, should it be an S corporation or a C corporation?
You may not have considered yet how the formation of a C corporation might help you exclude 100% of the capital gain tax upon the future sale of your stock in the C corporation. Recent tax legislation has extended the 100% capital gain exclusion to qualified small business stock purchased in 2013 and eliminated the alternative minimum tax that otherwise might apply.
In other words, with proper planning as a C corporation, you might have the ability to recognize up to $10 million in tax-free gain upon the future sale of your stock.
How Can You Be Eligible For This Tax Exclusion?
In order to be eligible for the exclusion of capital gains tax upon the sale of your stock:
- You must acquire the stock as an individual shareholder in exchange for money, property (but not stock) or services;
- You must hold the stock for at least five years; and
- Your company must be a “qualified small business.”
Where should you incorporate your business – Delaware or California? We recommend that you consider a Delaware corporation as the first option, given the advantages that come from incorporating your company in Delaware. It is important to select the right state of incorporation at the beginning, so that you avoid additional complications and costs down the road.
This video explains some of the key reasons why you should incorporate your business in Delaware, even if your company is based in California.
Where should you incorporate your business – Delaware or California?
Where should you incorporate your business, Delaware or California? This is a very important issue that you need to get right, so that you start your company with the right state of incorporation and get it going down the right path.
When we set up new corporations, we always start with the assumption that we are going to set up a Delaware corporation. Even if your company is based in California or another state, there are significant benefits from using a Delaware corporation, some of which we explain below.
First, Delaware is investor friendly. Delaware corporate law and Delaware corporations are well known and familiar to investors. Delaware corporations are considered the gold standard of corporations. Investors understand Delaware corporations and many times they will even require that a company be structured as a Delaware corporation before they will invest their money. Also, by setting up a Delaware corporation from the get-go and doing it right, you will avoid the extra complications and expenses that may result from having to reincorporate, or move the state of incorporation from a state like California to Delaware. So do it right from the beginning, especially if you are interested in raising money from investors – set up the Delaware corporation and get it on the right path to money from the beginning. … Continue
When is the right time to incorporate your business? Many entrepreneurs wait too long before setting up their corporation and formalizing the structure of their business.
This video explains some of the key reasons why you should incorporate sooner rather than later - Don’t wait to incorporate!
Don’t Wait to Incorporate!
When starting your new company, I recommend that you don’t wait to incorporate for the following reasons:
First, if your company is going to raise money, then you need to have a legal structure in place so that you can receive the investment financing from the investors. A corporation allows you to do this. The corporation receives the investment financing from the investors; and in exchange for the money received, the corporation issues shares to the investors and these shares represents the ownership positions that the investors initially will have in your company.
Team of Founders
Next, if you have a team of founders coming together, then the corporation will help define the roles, responsibilities and ownership stakes of the founding team. For example, the corporation will help determine who will be on the board of directors and who will be the officers of the corporation, including the specific officer positions that they will have. … Continue
According to LegalZoom’s website, over 1 million satisfied customers have used its popular legal document service. At LegalZoom, they even “guarantee your satisfaction.”
Perhaps LegalZoom should redraft its guaranty, because we continually are pulling out the legal broom to clean up these do-it-yourself legal documents. On a regular basis, we encounter more and more companies that have used LegalZoom or similar legal document services and later realize that their corporate formation or legal structure is defective.
“You get what you pay for…”
LegalZoom offers a legal document service for a fee. The LegalZoom website provides a disclaimer (albeit in fine print at the bottom of its home page) that “LegalZoom is not a law firm and is not a substitute for an attorney or law firm.” Its disclaimer further states that “LegalZoom cannot provide legal advice and can only provide self-help services at your specific direction.” You simply get what you pay for with these legal document services.
LegalZoom is not the problem in all cases – it provides legal solutions that may be adequate in certain situations. For example, some businesses may survive and even prosper with the assistance of a legal document service, because sometimes a cheaper, do-it-yourself alternative is “good enough” and gets the job done. As the customer, you need to determine whether this type of service will produce the legal documents that your company really requires. If you choose to use a self-help service, then you should not expect that qualified attorneys with the proper subject matter expertise will be available to review, revise and customize your company’s legal documents in a manner consistent with your particular legal, tax and financial circumstances.
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Carlos is super-sharp (he's a JD/MBA from Stanford) has impressive work credentials and experience (former partner at MOFO), and provides the kind of personal legal advice and services that I'd been yearning to find before being recommended to him. Ditto for his wife and business partner, Maria! … Continue - Bassim Hamadeh, CEO of Cognella, Inc.
"Carlos is a very talented attorney. He also has a strong sense of business realities (Stanford MBA) and employs a healthy dose of creativity where appropriate. He seamlessly synthesizes his wealth of technical skill and ‘big law’ experience with reason and practicality, consistently asking ‘How do we get this done well and efficiently?'" … Continue - Derek Fairchild-Coppoletti, CEO & Founder at Stealth-Stage Startup
I use Carlos as my personal attorney and refer all of my friends and peers to his firm, California Counsel Group (CCG) because I trust CCG to ethically and competently handle their legal affairs. Carlos makes you feel important … Continue - Alan R. Stewart – Founder & CEO, May I Borrow Your Glasses, Inc.