Every business starts with a basic idea. Then come the formalities. You have to capitalize and protect your business with the most basic question being what type of entity should you use when moving forward. There are a host of factors that have to be considered when you make this decision. That being said, most people fail to take into account what their exit strategy will be.

What is an exit strategy? It is simply a planned method for getting out of the business. Examples would include selling your ownership interest, going public and transferring the business to someone else such as a family member. If you don't think this through very carefully, you can really create some major problems when it comes time to take action.

The "Great American Dream" for most new businesses is to be a storybook situation like Google. You launch the business, it is a huge hit and you go public in a few years and pull in hundreds of millions of dollars because of your ownership position. It sounds great, but you must have made the right business entity choice at the outset to pull it off. Let's take a look.

You must be a traditional "C" corporation to go public. Why? There are a host of reasons, but two come to the forefront. The first is only a corporation has shares, which are the basic platform for trading in stock markets. Second, the traditional corporation is a stand alone entity for tax purposes, which means the IRS will sign off on it.

What about an "S" corporation? The S corporation is primarily a tax designation, not a legal one. The "S" refers to a chapter in the internal revenue code. You cannot take this entity public because the financial information passes through to the shareholders for tax purposes. This problem is easily cured, however, since you can convert to the "C" designation.

What about the limited liability company? An LLC cannot go public. It has no shares to trade. Instead, the ownership is expressed through something known as "membership interests". What about converting the LLC to a corporation? Well, it depends on the state you are in. In many cases, you have to actually shut down the entity and relaunch it as a new business. That is usually a non-starter for many businesses.

There is much to think about when launching a new business. Make sure to include the subject of how you will eventually leave it or you might not be pleased when it comes time to do it!

Thomas Ajava writes about the <a rel="nofollow" href="http://www.advantagesdisadvantagesofcorporations.com/corps/advantages-of-corporations">advantages of corporations</a> and other corporate topics for <a rel="nofollow" href="http://www.advantagesdisadvantagesofcorporations.com">AdvantagesDisadvantagesofCorporations.com</a>.