Regardless of entity classification, one issue faced by almost every new business is raising the capital needed to cover formation costs and projected operating expenses for a limited period. In capital markets, a business may sell shares. However, small businesses or startup firms may not have that access. Is an arrangement comparable to corporate shareholders available to them?
One solution might be venture capital firms that pool funds from a group of investors. An individual may prefer this approach if he or she does not want to bear any responsibility for the debts of a business. An investor simply has a financial stake in a business entity's profits, if it is successful. If the business is unsuccessful, the worst thing that can usually happen is losing the amount of one's investment.
In California, the prevalence of start-up technology companies has given rise to a number of different venture capital firms. A business owner may find that venture capital is a convenient way to raise funds. However, a smart business owner would be well advised to seek an attorney's input regarding the documents needed to memorialize that relationship in a business agreement or other legal documentation.