Final answer:
For a startup venture with no background in business and finance, an LLC may be the most balanced legal structure, offering liability protection and operational flexibility. Private investors, such as venture capitalists or angel investors, are considered more suitable as initial funding sources over an IPO due to their deeper insight into the business and capacity to contribute beyond capital.
Step-by-step explanation:
When choosing a legal business structure for your startup, considering the nature of your venture and your personal risk tolerance is essential. A Limited Liability Company (LLC) could be a suitable choice because it offers the protection of personal assets from business liabilities, similar to a corporation, while providing the tax efficiencies and operational flexibility of a partnership. Conversely, a corporation might provide benefits when raising funds, as it allows for issuing stocks, but it might involve more regulatory compliance and corporate governance.
As for raising funds, very small companies like startups often turn to private investors such as angel investors or venture capitalists. This is common because an Initial Public Offering (IPO) is costly and complex, and startups usually do not meet the required criteria for the public market. Private investors can offer knowledgeable advice and are more capable of assessing the entrepreneurial team's capabilities and business potential than public investors.
A venture capitalist typically has better information about whether a small firm is likely to earn profits than a potential bondholder because they are closer to the management team and understand the nuances of the business plan. As a startup, using private investment at early stages can be the most advantageous tool for raising capital, allowing contributions not just in terms of money, but also advice, networking, and business acumen.