Invest in Yourself: What Every Entrepreneur Needs to Know
All this week on the show we’re showing you how to invest in yourself and meet the challenges of starting a small business from scratch. Every entrepreneur asks themselves a similar question: how can I protect my money while making my idea come to life?
On Tuesday, Carmen spoke to Mark Dressel, an entrepreneur developing his big idea – the self-cleaning toilet plunger (not bad, right?). Dressel said he and his partner, after spending $10,000 on the idea, are looking to protect their invention and develop a business structure. Particularly, they needed to determine if it was better to establish an LLC (limited liability company) or to incorporate their business.
Robert Shapiro, famed defense attorney and founder of LegalZoom.com, told Dressel to immediately apply for a provisional patent. That will give him a year to continue to develop his product and get a full patent without worrying about his idea being stolen. Shapiro also recommended avoiding a partnership agreement no matter how close Dressel was with his business partner. A partnership will “inevitably” lead to a lawsuit, Shapiro said.
Instead, an LLC will provide the adequate level of protection without complicating the business with shareholders agreements (necessary if they were to incorporate). In an LLC, the business owners are treated as individuals for tax purposes, and it is generally the simpler option for entrepreneurs. However, if they were to eventually bring their product to the market (Dressler says he’s more interested in licensing the self-cleaning plunger than taking on the costs of manufacturing it) than an incorporation will likely offer more protection.
Shapiro also echoes that timeless refrain of “getting everything in writing.” Watch the video above for more on the differences between incorporating and forming an LLC and how to prepare for the prohibitive cost of distributing a product versus just inventing and building it.