Choosing to start your own business can be an incredibly rewarding experience, both personally and financially. However, in order to get your small business off the ground, you are going to need to raise capital before you have sold a single product. Different types of investments can be obtained, and different forms of businesses will be able to raise funds in varying ways.
If you decide to form a business using a general partnership, that means two or more individuals will create a partnership agreement laying out what everyone is responsible for. This includes financial responsibility. The source of this investment can range from each partner making a personal investment in the company. That would involve taking money out of each of your personal savings accounts. Another option is to go to a bank to obtain a small business loan. Both partners are ultimately accountable for eventually repaying the loan.
A sole proprietorship is an organization that is owned by an individual as opposed to a partnership. Typically, the finances of the business owner are intimately tied to the finances of the business. That means when the business suffers a loss, the owner suffers a loss as well. However, if the business is financially successful, then the business owner stands to personally gain big. When you are just starting, you will likely need to invest a great deal of your own funds into the organization. You could also seek out a loan from a bank. Sole proprietorships are also generally the most likely type of business to get initial start-up funds from friends and family.
Corporations are able to issue their own stock. Therefore, the amount of investment a corporation could gain in total is based on the number of shares of stock that can be issued. In the event a corporation needs to raise further capital, a corporation always has the option to issue more shares. When a corporation is initially getting off the ground, then it is often in the organization’s best interest to use stock subscriptions. A stock subscription is essentially a promise to invest. It is a way for investors or employees to get shares of stock without having to pay a broker’s commission. It comes at a much more attractive price, so it is a good way to capture people’s attention.
An agreement will need to be reached with the other partners of a start-up business in order to determine how much is required to invest initially. This investment can take many forms, including labor, services, mailing lists, equipment or straight cash. Anything invested is viewed as taxable income for the partners. Certain considerations need to be maintained so that a limited partner does not overstep a boundary and technically become a managing party of the business. If this happens, the limited partner could lose certain protections regarding the partner’s obligations and debts.
Limited Liability Company
If you decide to start your business as an LLC, there are various methods for acquiring start-up capital. You should look into your own assets such as your personal savings or selling any property you might own. It can also be highly advantageous to invite additional members to join your LLC. Not only will this raise your initial finances, but it will also broaden your business contact circle. It is also wise to look into what government-sponsored loan and grant programs are available to you. Conventional loans and other forms of short-term financing should be considered.Initial investments are essential if you want your business to get started so that you can better your community. There are a wide range of avenues to take in order to raise capital upfront, so look into all your options before settling on a single method.
The content on our website is only meant to provide general information and is not legal advice. We make our best efforts to make sure the information is accurate, but we cannot guarantee it. Do not rely on the content as legal advice. For assistance with legal problems or for a legal inquiry please contact you attorney.