Business rules 1-10 recaps

Business rules recap. Photoby: ed.ward

Over the past month we have went over all the basics for a solid foundation. If you followed the simple business rules 1-10 then you should be able to confidently finish the following sentences

1.    I should start my own business because…
2.    The reason I am starting a new business is…
3.    The small business that I am going to start is…
4.    My target market is …
5.    My biggest competitor is…
6.    I will supply by business needs and demands by…
7.    My business entity is….

Starting your own business can be a tough decision but once you have figured that small business is the best direction for you, knowing where to start can be confusing.  SBS business rules are designed to take away a lot of the stress of getting started. These simple rules will help you create a solid foundation for any new business.

What you learned

Business rules 1-3 had you examine your strengths and weakness in order to see if you were compatible with entrepreneurship and to define your business goal.

Business rules 4-6 had you examine your skills and experience to help you decide on a business idea that is congruent with your business goals.

Business rules 7-9 focused on research, so that you can define your target market, competitor and locate possible vendors for your business.

Business rule 10 defined different entities so that you can make an informed decision on which entity is best for you.

SBS Business Rules #1-10

1.    Know Thy Self

2.    Be Informed

3.    Define Your Purpose

4.    Value Your Skills & Experience

5.    Business Idea vs. Business Goals

6.    Lay the Right Foundation

7.    Define Your Target Market

8.    Identify & Analyze Your Competitors

9.    Find a Vendor

10.    Decide on a business entity

What did you think about business rules 1-10? Did you find them helpful?

Forming a Non Profit

Forming a non profit. By Tracy O

Another popular type of corporation is nonprofit organization. As a nonprofit you are in the business of providing a service or program for the sole purpose of development rather than for self or community. S and C corporations are for-profit organizations that sole purpose is to profit and redistribute those profits amongst the stakeholders in the business. A nonprofit may accrue earnings but it is for the sole purpose of self preservation and financial backing for future business plans. The stake holders does not financially profit from the success of the nonprofit.

 These are formed for civic, educational, charitable, and religious purposes and enjoy tax-exempt status and limited personal liability. (SBA)
 
The major advantage of non profit is the ability to file for tax-exemption from income tax and for some charitable organizations, property taxes. It does not make them exempt from employment taxes. Other advantages are the limited liability and starting a nonprofit may qualify you for grants and other financial assistance.

Starting a corporation can be a tedious task and making sure that your business structure is set up correctly and meet the many legal requirements can be overwhelming. Seeking the assistance of an attorney will not only help you make an inform decision but will also make sure that you are in compliance with the state and federal government.



Keep In Mind
This is the end of the three part discussion on different business structures. When trying to figure out which entity is best for you and your business, keep the following in mind:

•     Your Business goals
•     Business structure-How do you want your business structured?
•     Business legal vulnerabilities- Are you entering a high-risk business that may make your business vulnerable to lawsuits?
•     Tax effects- What are the tax implications and which entity offers the best tax benefits.
•     Profit/Loss projection and investment
•     Start Up cost
•     Ease of ending business

Deciding on the right entity can be at times tough and maybe speaking with a professional who has experience in business and tax law can you help you decide on the right business entity for you.

Make sure to visit your secretary of state website for state specific requirements for starting a business in your state.

www.sos.state. (enter your state abbr.).us


"Copyright © 2010, Dawn Austin, Recipe for Small Business, writer, SmallBiz Stew. All rights reserved. Permission granted to reprint this article on your website without alteration if you include this copyright statement and leave the hyperlinks live and in place."
 

What business entity best fit your business structure?

S & C Corporations: The facts

Forming a S & C corporations Photo by:echiner1

Starting a business requires a lot of decisions and some of those choices can legally bind you to them. Being completely informed on the decisions you have to make will help you make the right decision that best suits your personal and business needs. Today’s discussion will cover S & C corporations.

To start a corporation means to start a business that is considered legally a special entity separate from its owners. Corporations are seen as an entity that can be legally sued, responsible for tax obligations and other obligations as a sole proprietor would. The biggest difference between corporations and general partnerships (GP) is the business structure. GP's are usual in charge of the day to day business activities and make all the necessary business decisions but corporations are run by elected board of directors who oversee the major operations for the shareholders (owners). Another difference between corporations and partnerships is the vitality of the business depends heavily on the longevity of the partnership wherefore corporations continue to move on even after ownership change.

Trying to figure out if a corporation is the best entity for you and your business, use the below advantages and disadvantages to help you decide.

The advantages of corporations

•     Limited Liability- Risk usually is limited to the shareholders investment in the business (there are exceptions see www.irs.gov for more).
•     If the corporation is a stock-corporation then capital can be raised through selling of company stock
•     Tax deductions for employee benefits
•     Depending on the type of corporation may be able to do pass thorough taxes.
•     Assistance with start-up cost

The disadvantages of corporations

•     Long and costly set up
•     Heavily regulated
•     Depending on what type of corporation can be double taxed
•     Possible higher taxes
•     No longer complete control over business
•     Shared profits

How to start a corporation?

    Business Name Check
You have to make sure that the business name that you have isn't already being used by another corporation and that your corporation name is in compliance with your state corporation rules. 

    Appointment of Directors
The Board of Directors is the decision makers who possess the creative control to guide the business during financial decisions including the disbursement of stock and the appointment of corporate officers. Check with your state rules to see if it is necessary to list the initial directors in your filing. Some corporations use their first meeting to decide on directors.

    Paperwork
You will need to complete the necessary paperwork usually titled Articles of Incorporation with your secretary of state and pay the requested filing fee. The filing fee also varies by state and ranges from $55 to $400.  Check with your secretary of state website to get the state specific requirements and the necessary paperwork.

www.sos.state. (enter your state abbr.).us

    First Meeting
Have your first meeting with the board of directors where you can discuss the necessary things to begin your corporation. This may be the time that many corporations chose to pick the board of directors and corporate officers.

    Stock
The issuing of stock to shareholders detailing their ownership shares in the corporation.

Starting a corporation can be very time consuming and strenuous on your pockets. Knowing which corporation you want to start can take some of the headache out of the battle.

There are different types of corporations that you can start. Two of the most popular are S corporation and C Corporation. S and C corporations originate from the corporation govern subchapters of the Internal Revenue Code. Both types are corporations but with different governing rules and tax implications. Each is seen as separate identities from its owner and both offer limited liability protection to its owner. Outside the tax implications both corporations are governed by the same rules, so now let’s look at what makes them different.

S-Corporation

S corporations are corporations that elect to pass corporate income, losses, deductions and credit through to their shareholders for federal tax purposes. (IRS, April 2010)

The great thing about S corp. is the fact they are allowed the special tax privilege pass-through treatment.
Pass-through tax treatment allow for business owners to report their gains/losses on their personal income tax which eliminates the possibility of double taxation.

Qualifications for S corporation status:

•     Be a domestic corporation
•     Have only allowable shareholder (Including individuals, certain trust, and estates and may not include partnerships, corporations or non-resident alien shareholders)
•     Have no more than 100 shareholders
•     Have one class of stock
•     Must be an eligible corporation i.e. certain financial institutions, insurance companies, and domestic international sales corporations.

C-corporation

A business structured and entity as recognized and authorized under law. (IRS 04/13/10)

All publicly owned businesses are C corporations because unlike S corp.'s., C corp.'s can have unlimited owners. As a C corporation you also benefit from the dividends received deduction (DRD) which make dividend payments tax deductable. Which protects C corporations from being triple taxed; Corporation taxed, corporate shareholder then individual shareholder taxed but DRD protects the C Corporation from triple taxation.
 
The major differences between S & C corps

•     Most C corp.'s are publicly owned business and that’s the biggest difference between S and C corporations. S corporations are not allowed to have more than 100 owners but a C corporation can have unlimited number of owners. 

•     Corporations, partnerships, LLC's can become a C corp. because C corp. is not limited to possible owners (shareholders). 

•       Shareholders and C corporations are taxed subjecting C corporations to double taxation, but S corporation are given pass through tax treatment. 

"Copyright © 2010, Dawn Austin, Recipe for Small Business, writer, SmallBiz Stew. All rights reserved. Permission granted to reprint this article on your website without alteration if you include this copyright statement and leave the hyperlinks live and in place." 

Forming a LP or LLP

Forming a limited partnership. Art by: Aidan Jones

Limited means that most of the partners have limited liability (to the extent of their investment) as well as limited input regarding management decisions, which generally encourages investors for short-term projects or for investing in capital assets. This form of ownership is not often used for operating retail or service businesses. (SBA)

Limited Partnership is exactly how it sounds. In a limited partnership (LP), instead of full equal responsibilities and profits the partnership is instead limited. Your partner would only be liable up to the percentage they have financially invested into the business. Before you can decide which partner entity is best for you, you must have a clear understanding what each entity means.

Example: Marjorie invested 40% into Kelly's Daycare Center so she is liable for 40% of the business debt and other reverse action against the business. Marjorie has no management control and instead receives a return on her investment from her partner.

One of the partners act as the general partner (GP) who is in charge of the day to day activities while the other partner involvement is more limited and works more like a silent partner (LP). 

LPs have complex formation requirements, and require at least one general partner who is fully responsible for partnership obligations and normal business operations. The LP also requires at least one limited partner, often an investor, who is not involved in everyday operations and is shielded from liability for partnership obligations beyond the amount of their investment. LPs do not pay tax, but must file a return for informational purposes; partners report their share of profits and losses on their personal returns. (SBA)
 
Limited Liability Partnership (LLP)

Limited Liability Partnership (LLP) protects you from being legally responsible for your partner’s negligence.

Limited partnership (LP) allows your limited partner some of the corporation benefits and limits their liability to the extent of their investment into the business but limited liability partnership (LLP) gives protection to all partners. No longer is your partner liability limited to their business investment but you also are protected from being held personal liable for the debts and legal actions against your business. This also allows each partner an equal voice in the decision and creative decision making.  Since this is all being governed on the state level each state can have different standards and rules for limited liability partnership. Some states may require that only specific type of business can become a LLP and some states do allow the partners to be personal liable for certain type of judgments, so make sure to check with your state website for more information.

 LLPs are organized to protect individual partners from personal liability for the negligent acts of other partners or employees not under their direct control. LLPs are not recognized by every state and those that do sometimes limit LLPs to organizations that provide a professional service, such as medicine or law, for which each partner is licensed. Partners report their share of profits and losses on their personal tax returns. Check with your Secretary of State's office to see if your state recognizes LLPs and if so, which occupations qualify. (SBA)

When deciding which option is for you, keep your business goals in mind. If your business goal is to have management control that doesn't mean that having a partner is out of the question. The question instead becomes, which entity of partnership will allow you to keep management control but also allow you to receive the benefits of having a partner such as assistance in raising capital?

Deciding on a business entity
In making a choice, you will want to take into account the following:

•    Your Business goals
•     Business structure (How do you want your business structured?)
•     Business legal vulnerabilities(Are you entering a high-risk business that may make your business vulnerable to lawsuits?)
•     Tax effects (What are the tax implications and which entity offers the best tax benefits?)
•     Profit/Loss projection and investment
•     Start Up cost
•     Ease of ending business

 How to become a LP or LLP?

    Business Name Check
You have to make sure that the business name that you have isn't already being used by another LLC company operating in the same state as you.

    Paperwork
You will need to complete the necessary paperwork and pay the requested filing fee. To get the necessary paperwork go to your states website for the secretary of state.

www.sos.state.(enter your state abbr.).us

    Public Announcement
Some states actually require you to make a public notice about your intentions to become a LLC. Check with your state to see if they require a public notice.

Make sure to visit your secretary of state website for state specific requirements for starting a partnership, LP or LLP in your state.

www.sos.state.(enter your state abbr.).us

If you are contemplating getting a partner use today’s discussion to help you get closer to figuring out what partnership entity is best for you.


"Copyright © 2010, Dawn Austin, Recipe for Small Business, writer, SmallBiz Stew. All rights reserved. Permission granted to reprint this article on your website without alteration if you include this copyright statement and leave the hyperlinks live and in place."

Forming a business partnership

Forming a business partnership. Photo by cquarles.

In a market of uncertainty it is a relief when you are not going at it alone and instead you have a partner. Although your business goal might be to have complete control over your business and receive 100% of its profit but forming a business partnership may be the best option for you and your business. Having a complete understanding of your personal and business needs take some of the hassle out of figuring out what entity best suits you. Some businesses take on a partner to help their business survive or to help in the management side of the business. Whatever the reason you may decide to start a partnership, you should at least know what that means in the eye of the law. Today’s discussion covers partnership.

Partnership

A partnership is the relationship of two or more people invested in starting a business.

As partners you each equally share in the profits, the decisions, and the business debt. You are no longer solely responsible for the success and/or failure of your business.

When you form a business partnership it is imperative to consider if this would be a good business decision. You have to make sure that you and your partner share the same business goals and have a common view of where you plan to take the business. It is important to have written agreements that cover the following:

•     Each partner contribution
•     Decision Making
•     Profit Sharing
•     Disputes
•     Future additional partners
•     Partner buyouts

It is best to get this in writing and in place before the first day of opening. It is hard to imagine but in the event that the business has to be disassembled you already have agreed upon terms to guide the process.

In the eye of the law just like sole proprietorship, partnership is seen as one with the business. The law does not see a distinction between the business and its owners. Just like sole proprietorship there are unlimited liabilities and both you and your partner personal assets can be at risk.

To figure out if partnership is the best option for you use the below advantages and disadvantages for partnership as a guide.

The advantages of partnership

•     Assistance with raising capital
•     Assistance in business set up (Now you’re not stretched so thin and don't have to worry about doing everything on your own.)
•     Pass-through taxes (Pass-through tax treatment allow for business owners to report their gains/losses on their personal income tax which eliminates the possibility of double taxation.)
•     Easy to establish
•     Liabilities are split

Disadvantages of partnership

•     Have to share control (It is imperative to have a partnership agreement and have a unified business goal and expectations to help avoid conflicts.)
•     Profits are shared
•     Limited business life (If one partner unfortunately dies it could cause the business to suffer severely or close.)
•     Liabilities are unlimited
•     Medical Premiums for Employee benefits are not taxable.
•     Disassemble of the business can become a hassle.
•     Your personal assets can be liable for your business partner’s actions.
•     Partners are jointly and individually liable for the business debts and actions.

 How to form a general partnership?

If there will be a different business name used other than the business partner names then you have to:

• Register your name with the necessary parties. Giving your business its own name will require you to register that name as a DBA (doing business as) or assumed as.

 How you register your name varies by state so you will have to check out you secretary of state website to see if you have to register you trade name either on the local level, state level or through a different agency.
www.sos.state.(enter your state abbr.).us

Example. State: Ohio

website: www.sos.state.oh.us

•     Get an EIN/TIN (Employer Identification Number/ Tax identification number) from the IRS by visiting their site. www.IRS.gov.

Partnership entity means a joint business venture that allows business owners to share in the profit and loss of their business. If a partnership is the entity for you and your partner make sure to start with a partnership agreement.

Sometimes a partnership is the best option and way to successfully launch a business. Knowing which partnership entity is best fit for you and your business is the key here.


"Copyright © 2010, Dawn Austin, Recipe for Small Business, writer, SmallBiz Stew. All rights reserved. Permission granted to reprint this article on your website without alteration if you include this copyright statement and leave the hyperlinks live and in place."