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What corporate structure is best for attracting investors?

On Behalf of | Feb 7, 2020 | Business Law |

When you have a business idea, it’s common for you to want to hurry and start advertising your services so that you can get them in front of potential customers. You may find the thought of having to incorporate your business cumbersome, especially when you simply want to see how they’re going to respond to what you have to offer. There are many reasons why it’s in your best interest to incorporate your business though. One benefit to doing so is that it allows you to more easily attract investors by doing so.

One of the primary reasons why individuals should incorporate their business is to protect themselves from being held personally liable for their corporation’s debts. Another reason that company owners should do this is that it makes it necessary for important details about the mission and hierarchical structure of the organization to be put in writing. This includes details about the corporation’s purpose as well as its owners, their ownership stock in the company and any rights that they may have.

These are all factors that a prospective investor will want to see clearly documented if they’re going to invest in your startup.

Investors often find it most appealing if your incorporation structure is a C Corporation. Venture capitalists and others looking to fund your business tend to like this type of corporate structure because it requires these companies to have both a board of directors and officers. These types of corporations also allow for shareholders.

It’s commonplace for investors to expect to receive certain shares in the business in exchange for their investment. Some funders even demand appointments to at least one board seat in exchange for their contribution of startup capital. Companies that have a limited liability structure and that have easily transferred stocks are most apt to attract new investors to contribute much-needed funds to grow their reach.

There are many benefits and downsides to incorporating your Michigan business using one structure versus another. Many of these have to do with legal liability and taxes. An attorney here in Oakland County can assist you in deciding what corporate structure is best for you and your Detroit area company.


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