If you are a startup founder or about to co-found one, this is for you.

The ideal legal structure for a tech company is a limited liability company (LLC)

Most tech start-ups are registered as a private Company limited by shares.

If you are building a tech startup and decide to register it as an enterprise (business name) rather than a limited liability company (LLC), then you have just succeeded in shooting yourself in the leg.

Building your business with the wrong legal structure is like being on the wrong bus headed to a different destination and hoping it will magically arrive at your destination.

One of the most obvious consequences of registering as an enterprise where you should be registering as a limited liability company is that it robs you of the opportunity to take advantage of equity financing.

A typical tech startup raises funds or additional funding by issuing equity to investors in exchange for the funds.

Investors are not Father Christmas. The money they give you is not dash money unless you are getting an Equity-free grant.

They always want something in return, They want a stake (Equity) in the business.

They give you the funds you need to start or scale your business, and in return, you give them a share of ownership or equity in the startup.

The equity percentage that a person has is a function of the number of units of shares he bought or was issued.

The exact number of equity or shares that you give to an investor is based on the Agreement between you two.

What you agree to give to your investor or Cofounder is a function of your bargaining power.

The whole equity and funding discussion is a matter of contract.

Everything is contractual and a business name cannot enter into contracts in its name as it lacks the legal capacity to do so.

A whole lot of other legal issues are involved in building a startup

Just like I have always said, the legal aspects of your business go beyond registering the business with the CAC.

so Dear business owner...

Before you jump on the bandwagon of business name or enterprise registration because you think it will be cheaper, ensure that it is actually the right legal vehicle for your business.

To your #LegalSense.

#BarinaadaLegal.

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