So you have a great invention but you have had really terrible luck trying to sell it to major manufacturers, or get it into the local monster marts. What are you to do? You may consider building a business around your invention. This is a tough road to follow, but in the end it can be the most profitable for the inventor anyway. Many inventors are naturally endowed with what is commonly referred to as an entrepreneurial spirit, well it's time to use that to your advantage.
Again be warned that this is not for everyone. You must be ready to spend long hours tirelessly working to make your business succeed. You must learn to budget, and stick as close to that budget as possible. You will have to learn a wide variety of new skills from accountant to machinist, and everything in between. If this type of thing doesn't interest you, perhaps you would be better off going back to the drawing board. Inventors may times feel pushed into this option however, so this may be your only viable road to success.
It can be a very enjoyable experience, but once again not for everyone. Quite simply, if you have the will and the drive to succeed with your invention, you will. If you don't you won't. And that is the fact regardless of how you market your invention. You give up, it won't happen. You stick with it, and pursue avenue after avenue until your goal is achieved, you will succeed with your invention.
If you have looked around at the business owners you know, you may end up asking yourself, "how are they able to do it?" That is to say, we have all known business owners with a definite "learning disorder", they can't handle money, they make rash and un rational decisions, but this doesn't stop them from owning and running great companies. Never think that you don't posses the intellect, and that's keeping you out of it, that simply isn't true. There are people all across the world making good with companies that they barely understand, how are they able to do that? Surrounding themselves with good advice.
One of the most important considerations in creating a business around your invention is choosing the type of business structure that best suits you and your business. The choice of business structure for an inventor or entrepreneur can make or break their business. There are several types of business structures currently allowable by law. Sole Proprietorship, Partnership, Limited Partnership, Limited Liability Company, and Corporation are the five main types of business structures. All of these could be used to form a company around your invention, but I will focus on the three most often chosen.
Sole Proprietorship: A "Sole Proprietor" type of structure is just that, you own a business, and you are responsible legally for all the assets, and resources of that business. This means that if your business applies for credit, a personal guarantee is required. It also means that if your business is sued for any reason, that you are liable for the damages. Also, a Sole Proprietorship dies when you do, as there is no legal distinction between you and the business. This is a business structure often chosen by inventors and other small businesses simply for lack of understanding about the very business structure that they have selected. This structure leaves a person wide open for lawsuits (which are far more prevalent than you may suspect) and business debt. These are only the beginning of the drawbacks with the Sole Proprietorship, another would be tax disadvantages.
There are some advantages to the Sole proprietorship, namely ease of formation. You need only to file a business license with the state in which you are opening this business, and you are immediately considered a Sole Proprietor. Another advantage is with the tax payment methods, commonly referred to as "pass-through tax treatment" meaning that your business taxes are filed on the same return with your personal taxes, because all the income, expenses, profit and loss come directly through you as the sole proprietor.
Partnership: A partnership is very much like a sole proprietorship, except for the fact that the business is owned by two or more people. These people share in the profits and losses of the business, and are legally bound by the debts of the partnership. There is no protection against personal assets from lawsuits or debt in this type of structure either. And also all financing needs to be obtained with a personal guarantee. There are many types of partnerships, but these rules apply basically for all of them.
Corporation: To many, the words corporation and incorporated may bring up some negative emotions, however this may be the best type of business structure for inventors. The corporation structure is misunderstood by a vast majority of people, and can be more easily understood with a few basic facts about the corporation type of business structure. First, and most importantly for many inventors, financing can be obtained without a personal guarantee. If you have bad credit, no big deal. If you can establish your corporation's good credit, that will be enough to obtain some financing. Another key advantage of incorporation is that there is no personal liability, meaning if your corporation is sued, you are not personally responsible to pay for the damages. Taxes also can be quite a bit less brutal under the corporation structure adding a third crucial advantage to this structure.
Corporations are less likely to be audited by the IRS, because for a variety of reasons, they are considered to be more "credible". There is no "Self employment tax" liability if your are a corporation. By forming a corporation you are creating a legal entity within the state in which you incorporate. This business entity will live on long after you have passed on, as long as all applicable rules are complied with and appropriate fees paid.
There are of course subcategories within these main structures. There are different types of partnerships, corporations, LLCs etc. each with their own unique advantages and disadvantages. I suggest you research thoroughly the business structures which you think might fit your business before making a final decision.
Make an informed decision, and you will be able to pat yourself on the back for it years down the road. Innovation is the backbone of any evolving society. In order to properly bring it to fruition, sometimes creating a business in necessary. Don't be afraid to try, try, again either. You might be glad you did.
The Lone Inventor
