How to pick the right legal entity for your enterprise

Legal mistakes can cost you. To find out what entrepreneurs need to know when creating their business, we interviewed Kate Kilberg, a lawyer who specializes in social impact.

Were you always interested in social impact law?

When I came out of Harvard Law School, I went to work at a big corporate law firm. I started out doing tax law but quickly realized that the clients I enjoyed working with most were those doing charitable things. Throughout my career, my work has been 50% estate planning and 50% nonprofit.

When did you decide to shift focus to social impact full-time?

About four years ago, I went through a period of soul searching. I did a lot of work with spirituality and I thought: how does this impact my professional work? I realized that I have this background of working with nonprofits and this vision of social enterprise law slowly came into focus.

How do you define social impact?

[I define it as] doing well by doing good. It’s making profit that is mindful and contributes to the condition of the planet and the human race. It could be a for-profit/nonprofit combination or working within a nonprofit solution. [Essentially], it’s taking out the profit-only motive.

Legally speaking, what do social entrepreneurs need to be aware of that maybe other entrepreneurs don’t?

If you have an element of social mission in your business, you need to step back and look at the full spectrum of legal entities: is there an advantage of having a nonprofit affiliate or being a nonprofit? If you’re solely for profit, it’s pretty clear that you should be an LLC.

Is there an advantage to being an LLC?

You’re not going to be terribly profiting in the first year and because an LLC is a pass-through taxation, you’re not paying both at an entity and personal level. It essentially simplifies your taxes and makes things more flexible. [However], if you’re looking to raise venture capital, you might want to be a C-corp. If [your funding is] going to come from private donations or charitable donations, you’d have to include a nonprofit. It just depends on where you see your funding come from.

What’s a common legal mistake you see entrepreneurs make?

Doing things on a handshake business; aka not getting things in writing like taking on a partner or an investor. You need to have a partnership agreement in place.

If you don’t sign anything, would an email agreement hold weight in court?

Yes, that’s legal. But if you go to a lawyer they’ve seen enough of these things go wrong, they’ll be able to ask you questions and have solutions.

Do you have general advice for people just starting out?

I would strongly recommend investing in some kind of business coaching or advising. You don’t know what you don’t know. How do you market? Deal with employees?

I have a lot of people who come to our office with a great idea but no background stuff put together. Before you go to your lawyer’s office, get the very basic beginnings place of build ups and savings. Talk to people who work in the field you want to build your business in.

**Out of curiosity, what do you think of Legal Zoom?

I’m torn. My most technical expertise is nonprofit and estate and when people come in with a LegalZoom will, it’s pretty useless. It doesn’t have their particular legal situation in mind and they haven’t gone through the detailed analyst that a lawyer would. On the other hand, lawyers are expensive. 80% of americans don’t have access to legal help like this. So I think LegalZoom is trying to be part of a solution to that.

Is it possible to talk to a lawyer without paying thousands of dollars?

Most lawyers will be happy to give you an hour of their time which could be between $200-500/hour. You can ask them questions instead of going blind on the Internet. If you have a limited budget for legal, I’d suggest doing that first and then maybe ask them about LegalZoom. I think that would be money well spent.

Five questions to ask yourself to determine the right legal structure for your social enterprise:

  1. What is the purpose of your enterprise, and its goals?

  2. How much capital, time and effort are the founders willing to invest and what do they desire to receive in return?

  3. What is the business plan for achieving the short term and long terms goals of the enterprise?

  4. What type of capital, talent, and other resources are needed to achieve such milestones?

  5. How will such resources be obtained?

Related project
Sunshine Project H.E.L.P (Healing. Educating. Loving.People)
Sunshine Project H.E.L.P (Healing. Educating. Loving.People)

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