Considerations in Business Formation – Part I

In keeping with my promise to start at the beginning, my next few posts will be on business formation and subsequent posts will be on the different business entity types. Today I will focus on a few basic questions surrounding business formation, and the first few steps in business formation.

What does business formation mean in the legal context?

In a legal context, business formation is the process of planning and documenting the initial formal relationships among stakeholders that will govern the ownership and management of the business as it moves forward.  It encompasses planning and executing choices regarding entity structure, governance, capitalization, and tax strategies for the business as well as its founders and investors.

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Start at the Beginning

For the first post in my blog, the immediate question was “Where should I start?” Should I write an analysis of negotiation strategies in subsequent rounds of VC financing?  What about methods for organizing stockholder, debt holder and optionee documentation? Or maybe my plan for listing companies on the NYSE?

Of course not. I should take the advice I offer entrepreneurs: start at the beginning! I know that sounds pat, but it is something we all need to remember. It’s great to think big, but first you have to execute the details. In a start-up, entrepreneurs need to focus their plans on developing a Minimum Viable Product, not on dethroning Facebook.

So for my first post, here are two very basic questions entrepreneurs should ask themselves when they are just cooking up a plan for a new business.

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