Considering Startups

Startups are founded almost every day in a wide variety of industries. It is amazing to see the brilliant ideas popping up from ingenious people. Sadly, having grand ideas doesn’t necessarily mean you know how or where to start. On average, 90% of all startups fail, and many fail within the first year of operation. However, gaining the knowledge and experience to start a business isn’t easy. After all, your energy is spent developing that new technology or revamping a service. Here’s where consultants and other professionals come in. The best ones are those that understand not only what you need but the budget you have to get it done. So before you decide on the name for your new business, consider a few categories.

Business Formation

Depending on the jurisdiction, the formation of a company depends on the needs and purpose of starting the business. The category offers a range of protection or a lack thereof for each type of business. In the United States, many small businesses with low risk initially begin as sole proprietorships or partnerships, although the latter implies a little more paperwork. Both are relatively simple to set up, although a business license or at least a trading name may be opted for. It’s pretty similar in the Turks and Caicos Islands. However, a trading name is legislatively referred to as a business name. While the process is relatively simple and low in cost, it offers little to no protection to the owner or owners. Increased protection is the main reason for persons seeking a more formidable business through incorporation. 

Incorporating a company depends on the needs and purposes of the business. Do you have sufficient capital to start the business? Are there local or international investors? Are the barriers to incorporation? Do you have tax implications based on jurisdiction of incorporation or the shareholders? Based on these and a number of questions, there are many considerations and terminologies to consider. In the Turks and Caicos, under the British system a company can be limited unlimited liability by shares. Whereas in the United States, limited or unlimited liability company has owners and does not consider shares. Another difference to keep in mind is the fact that S Corporation or C Corporations that do incorporate shares, don’t exist outside of the United States.

Why consider different jurisdictions? Depending on the answers to the above questions, tax consultants or trust advisors may be inclined to consider offshore structures for additional protection of income and assets. 

Risk Factors

Starting a business innately exposes oneself to various risk factors. Being that I deal primary with compliance, my focus naturally rests in this category. It is not surprising however to note that many of the compliance risk factors impact the entirety of a business. Compliance requires a holistic approach. Some of the main risks that most are exposed to include:

Data protection and privacy

Data protection is a major issue. Startups such as FinTechs are constantly targeted for exposure. Bad players are consistently looking for points of weakness businesses to exploit and take advantage. 

Money Laundering

Although money laundering and financial crime activities are generally limited and focused on financial and non-financial businesses (such as those businesses deemed to be more vulnerable to money laundering activities), any type of business could potentially be exposed to such criminal activities. Understanding the potential exposure that your business faces is essential to setting up the best program and company operations.

Outsourcing

It’s naturally to have limited resources and knowledge base when it comes to starting up a company. Outsourcing an accountant, administrator, marketing team or developer is natural. As the business grows, any outsourced resources must consider scaleability. Too often businesses incorporate programs or hire services that make it impossible to transition out. Despite the necessity, ensure to ask the critical questions. Any reliable resource will welcome questions about the morality of its services.

Also keep in mind that when opening of doors to third parties, does also open the doors to potential risks and vulnerabilities. It is essential to vet and be confident in any outside sources employed. Read the fine print. 

I’ve worked with many startups and companies in crisis, often businesses fail because no consideration was given to the impact of a decision. You’re excited to get started, I can appreciate that, but remember to take the time to consider the important factors before making long term commitments.