Entrepreneurs are risk takers; lawyers risk managers. An inherent tension exists. Take too much risk or over-manage the risk and the results can range from unsatisfactory to disastrous. However, in every venture, there are manageable risks and uncontrollable risks. The trick is to realize which is which and deal with them accordingly. I have met some smart, innovative first-time entrepreneurs with thought-provoking business plans that illustrate foresight and a nuanced understanding of market forces. However, more often than not, these very same entrepreneurs are more than willing to lump all their risks in the “uncontrollable” category.

For founders (especially for groups of founders), incorporation or the choice of an alternative business entity is the first step down a path of locating and dealing with the manageable risks that your venture faces. Who owns what percentage of the company? Who owns the I.P. that our company’s business plan is based on? Does it make sense for my stock to vest now or should it vest later, and if later, when? What happens if my co-founder leaves? What happens if I get an offer that I just cannot refuse and I have to abandon the venture temporarily or even permanently? What if I decide to quit? If my co-founders go on to take my initial business plan and make it a success, should I have a stake in their success, and if so how much? What guarantees am I willing to make to my clients, business partners and co-founders about my commitment and the potential product or service that my venture offers? Incorporation or the choice of an alternative business entity will lead you down a path that will bring you face to face with these uncomfortable and thorny questions. Think of it as building a house - you can ignore setting a solid foundation and still build a beautiful house; however, that shaky foundation is going to haunt you through the building process and can result in some very expensive retrofitting down the line. I would even argue that your lack of confidence might prevent you from taking some risks in design choice and architecture that you should be taking. On the other hand, dedicating some time to that unglamorous task of setting up a solid foundation as the first step frees your creative process from the worries concerning the foundation, letting you focus on your main goal: building a house.

If you are willing to dedicate your time, energy, and brainpower on starting a venture and you see yourself taking your idea the distance, you will invariably face many uncertainties and uncontrollable risks. The risks you face and the choices you make will dictate the success of your venture. You owe it to yourself, your co-founders, and your venture to deal with your manageable risks now so that you can concentrate on making your venture a success. Incorporation or the choice of an alternative business entity is a first step down that path.