Emerging brands have weathered the lockdowns and are right sized. They survived because they embraced technology and were able to pass pricing increases to their customers and clients. They are mobile ready and loving it. Now that we are entering a challenging interest rate, inflation and possibly recessionary environment, emerging brands are likely to survive these challenges because they have not been overly debt dependent. In comparison, more mature companies have more infrastructure and may not be as nimble. Let’s review the differences and how to avoid missteps.

Selecting the Right Legal Structure

Formation of a limited liability company (an LLC) is the best practice for formation of an emerging brand. It provides the most corporate and tax flexibility and eliminates the shortcomings of the alternative entity formations. An LLC can choose to be taxed like a partnership, but provide shelter from personal liability that a partnership cannot. An LLC can choose to be taxed as a traditional C corp, where losses are at the entity level and not at the individual level like a partnership. Keeping losses in the entity might make capital raising much easier in the future if investors know that there are losses that can provide tax advantages when the investors want to invest. An LLC can provide for different classes of membership, while a corporation taking a Subchapter S election cannot. The different membership classes for an LLC need not be publicly available, but the secretary of state in most states require that different classes of business corporations listed in the public filing of the articles of incorporation. The LLC is the most flexible and practical entity for emerging companies because of its flexibility in capital rights, structures and in tax treatment.

Selecting the Right Capital and Loan Structure

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