The Impact of Business Structure on Funding
Ice Miller can help innovators overcome critical challenges to grow successful agribusinesses. Learn more about the unique business and legal challenges facing food and agricultural innovators and how to protect and grow that innovation in our 2015 Agribusiness Guide. An excerpt follows:
The final, but important consideration when choosing a business structure, particularly for innovation companies, is funding. Start-up businesses usually raise funds through a combination of debt and equity. Debt, especially in start-up businesses, will likely require granting security to the lender and the members personally guaranteeing the debt if it is not obtained from family or friends. Debt also must be repaid, which can reduce cash available for investment in the business or require additional funding.
Alternatively, the business may sell equity to investors. Typically, in a start-up business, there are no mandatory payments associated with equity, but the founding entrepreneurs reduce their share of business’s future profits and their decision making authority. At the same time, outside investors may bring experience and specific expertise to the founding entrepreneurs.
At the end of the day, the decision as to the type of entity and funding structures can be complex. It is important for agriculture entrepreneurs to consider the pros and cons in light of their specific business and growth plans. However, they do not need to analyze these considerations alone – experienced counsel can help guide them through the process to provide a solid foundation for innovation and growth.