Agile projects are designed to be adaptive, responsive, and collaborative—in other words, they are meant to be dynamic, whereas more traditional project management tends toward the static. 

While that dynamism can yield many benefits, there are also some potential drawbacks. One of the big ones is a heightened level of risk.

In fact, one of the ways in which agile project management differs from traditional project management is that risk mitigation isn’t considered to be its own distinct phase. Instead, risk mitigation is integrated into every stage of agile project management.

As such, it’s wise to embark on the agile journey fully mindful of the different risk mediation methods available and to ensure they’re infused through the entire project lifecycle. 

Today, we’re focusing on one particular form of risk mitigation, and that’s choosing the right legal formation.

What are Legal Formations?

Legal Formations are basically the different ways of establishing a business entity in the eyes of the law. In some cases, this might mean keeping the business and the business owner intertwined, as with a Sole Proprietorship. 

Other legal formations, including the Limited Liability Company and the Corporation, establish the business as its own separate legal entity.

The legal formation you choose for your business endeavor will impact everything from how you report to the IRS to how you transfer business ownership to a successor. Crucially, it can also have major implications for agile project risk management.

Which Legal Formation is Best for Agile Project Risk Management?

That raises an important question: Which legal formation is best suited for successful risk mitigation within the agile framework?

There’s not necessarily one right answer here, as all agile projects differ, but the LLC format works best in most cases.

Sole Proprietorships and Partnerships

To understand what makes the LLC format so beneficial, it’s important to size up some of the alternatives.

When you start generating any kind of income on the basis of self-employed activity, the government automatically christens you a Sole Proprietor. In this formation, there’s no legal separation between the business and its owner. 

As such, there is no personal liability protection. If you get served a lawsuit or are pursued by an aggressive creditor, there’s no way to deflect legal risk onto the business itself. You are on the hook, personally.

From the perspective of risk management, a partnership works in much the same way. The only big difference is that you can potentially spread some of your legal risk between one or more business partners, depending on how you’ve set up the business.

Corporations

Another option is to incorporate. A corporation is a legal entity that is governed by a Board of Directors and is required to sell shares to investors in order to determine ownership of the business.

Corporations offer significant personal liability protections, which can make them well-suited for agile project risk management. 

However, they also come with significant regulatory burdens, which often impede the kind of nimbleness that agile projects thrive on. 

As such, the Corporation may not be the best match for agile endeavors overall.

Why the LLC?

Now, let’s get into the way an LLC operates.

An LLC is governed by one or more partners, who split profits, liabilities, and managerial duties. With an LLC, you actually do create a new business entity distinct from its owners. 

The LLC does not allow you to sell shares and does not come with anywhere near the same regulatory overhead you’d get with a Corporation.

Some of the reasons why the LLC format makes sense for agile project risk management include:

• LLCs offer personal liability protections, significantly limiting your personal risk exposure in the event of litigation or debts.
• The LLC formation is designed to be flexible and lightweight, making it a hand-in-glove fit for agile projects.
• LLCs offer a lot of room to determine how you’ll operate your business endeavor, providing a lot of leeway with regard to administrative structure.

For these and many other reasons, the LLC is generally regarded as the preferred formation for agile project risk management.

How to Register an LLC

As you consider registering your business as an LLC and taking advantage of these agile project risk management benefits, there are a handful of steps you’ll need to follow.

• Choose the state where you’ll register. You’ll usually want to stick to the state where your project is based unless it’s a real estate investment, in which case you’ll want to register wherever your properties are.
• Select a Registered Agent. You will need an Agent who has a physical mailing address somewhere in the state where you’re registering.
• File Articles of Organization. This is the name of the document you’ll file with your state, officially registering the LLC. Note that you’ll also need to pay a registration fee, usually somewhere between $30 and $300.
• Create an Operating Agreement. Agile projects thrive on flexibility, but it can still be helpful to create some basic parameters for how your venture operates. An Operating Agreement will provide just that.
• Set up your banking. In addition to claiming an EIN from the IRS, it’s also best to set up a bank account that’s not connected to any personal checking or savings account.
• Keep up with taxes and fees. Most LLCs are simply axed on a pass-through basis. Note that, if you’re forming an LLC in California, you’ll also be on the hook for a flat-rate $800 LLC tax.

Protect Your Agile Project from Undue Risk

Any time you take on an agile project, you have to account for ongoing risk. Risk management should permeate every stage of the project, and one way to ensure that is by choosing the right legal formation. To safeguard your agile project, consider the merits of LLC registration.