Gregory Gilman, CEO of rxVantage (www.rxvantage.com), shares three key reason to create a business entity. These reasons will give you an understanding as to why a business entity can benefit you.
- Minimize your personal liability
- Clearly define the relationship of the founders
- Provides the credibility to seek funding
I am asked all the time why someone would want to create a business entity. And I have started several businesses. I have advised many, many more and there is basically an unlimited number of reasons why someone would want to create an entity but three sort of main reasons in my opinion.
The first and most important is you want to limit your liability. If you do not have an entity, your own assets are on the line. And that is probably not a good situation for anyone.
The second is you wanted to find a founder relationship. Right, when you have gone through the formalities of actually setting up an entity, as part of that process, generally, the founders will set up the relationship between themselves which not only starts to eliminate confusion in the short term, it protects against a lot of future potential problems.
And the third and the most important for many is it allows you to raise capital. No one is going to invest in you unless you have an entity that surrounds you that they can then invest in.
And those I think are the three main reasons why you would want to create a business entity.