While it's possible to form a partnership and make an investor a partner or to form an LLC and make an investor a member, it's often more practical to form a corporation and make the investor a shareholder. That little piece of paper that the corporation issuesthe stock certificateis tangible proof of the shareholder's ownership interest in the business and it's something that most investors have come to expect. Put another way, if you offer an investor a partnership interest or an LLC interest, you're more likely to run into resistance than if you offer her stock in a corporation. Keep in mind that shareholders don't necessarily have to have equal rights to elect the board of directors or to receive dividends. To repeat this key point, the fact that the corporate structure makes it relatively easy to distinguish between different investors by issuing different classes of stock is a real advantage.
Stock options can motivate employees .
Especially for a business that sells stock to the public or plans to do so before long, which allows the market to establish a price for the stock, issuing stock options to employees at a favorable price can be a great way to motivate them. That's because employees who hold options know that if the business is profitable and its stock price goes up, they'll be able to cash in their options at a substantial profit. This can motivate them to help make the business successful. Also, employees who get stock options are often willing to work for a bit less salary, making investment capital go farther in the early days of business life. Structuring your business as a corporation is not only advantageous but actually essential iflike many small business ownersyou dream of someday attracting investors through a public offering.