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Forming A Company3:18 with Pasan Premaratne
When you’re first starting out it might not always seem clear why you should create a company. In this video, we cover the basic advantages to creating a legal corporate entity and how it can protect you and your business.
Now that you have been in business for 0:01 a while, you should think about creating a company. 0:02 A company is a legal entity created under state law that provides numerous 0:05 advantages, like opening a bank account, purchasing property, and 0:10 entering into contracts with other parties. 0:14 Companies are also structured to help with issues that arise in 0:16 the due course of business. 0:19 In this video, we'll cover most of the common advantages for forming a company. 0:21 Keep in mind though, I'm not a lawyer, so everything that we talk about is for 0:25 informational purposes only and not for the purpose of providing legal advice. 0:29 Let's start with founders. 0:34 If there's more than one founder for an idea or 0:36 organization, it's always a [SOUND] good idea to legally form a company and 0:38 split up the equity or ownership of the idea between the founders. 0:42 This prevents any misunderstandings among the founders and 0:46 helps avoid any argument that may arise later on. 0:49 [SOUND] If one of the founders comes up with any intellectual property, 0:52 assigning it as a property of the company is the best route to go. 0:56 [SOUND] We also need to consider how we hire and pay people. 1:00 If we didn't have a company, in the event that we couldn't make a payment, 1:03 we would be personally responsible and 1:07 these contractors could force us to pay from our personal bank accounts. 1:09 Having a company allows the contractor to enter into 1:14 an agreement with the company itself. 1:17 That way, we protect ourselves from any liabilities that arise in 1:19 the due course of business. 1:23 Most entrepreneurs don't have a large cash pile to pay off third parties with and 1:25 they choose to partially compensate these groups by granting stock or 1:29 equity in the company. 1:33 The easiest way to do this, 1:35 if we go down that route, is to issue equity in the company's name. 1:36 [SOUND] If you have really big plans for your business idea, then 1:40 incorporating will serve you well because it will let the company live on forever. 1:43 Depending on the type of company you form, [SOUND] incorporating will protect you or 1:48 any other stockholders against personal liability. 1:52 This means that if you owe your creditors, but can't pay up, 1:55 the creditors legally won't be able to take any of your personal stuff or 1:58 force you to pay because the company exists as a separate entity from you. 2:03 Now, this goes back to compensating any third party. 2:07 You never want to owe them personally because then they can 2:11 take legal action against you. 2:13 If your company owes them, they can seize your company's assets, but that's it. 2:16 A company should generally incorporate before launching a product or 2:21 service due to the potential liability issues as the risk of 2:24 liability to a founder increases with customers or use. 2:28 While the reasons to incorporate are plenty, remember that they involve out of 2:32 pocket costs and ongoing tax and other filing obligations. 2:36 Also, if you, as a founder, are currently employed by some other company, 2:40 make sure that there are no issues with you starting your own company on the side. 2:44 There're many incorporation services out there that do the work for 2:49 you and allow you to incorporate with ease. 2:52 But just remember, if you have any questions specific to your situation or 2:55 are unsure about anything, it's always best to consult a lawyer. 2:59 I'm not going to cover how you can specifically create a company 3:04 because depending on where you are in the world, that can vary. 3:07 Instead, look up all the different services that can help you incorporate. 3:10 I've listed a few of them so you can get started. 3:14
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