Choosing the Business Entity

Once you’ve decided to start a business, you’ll need to decide whether to form your business as a separate legal entity, and if so, what that entity will be, and what are some of the other steps you’ll need to take to get up and running. This article is meant to be general business advice, though, so you should still obtain specific legal advice for your particular situation.

Sole Proprietorship:

Single owner businesses sometimes choose to operate as a sole proprietorship. In this situation, the business essentially operates as an extension of the owner. The profits and losses of the businesses will be accounted for on the individual tax return of the owner. This form of business has the obvious advantage of simplicity in that there are no separate corporate or partnership formalities to be followed.

However, all liabilities of the business will also flow directly through to the business owner. This means, for example, that if a customer is injured on the business premises, or the business incurs debts beyond its ability to pay, then the personal assets of the business owner are legally available to satisfy those claims.

General Partnership:

Two or more individuals who own a business may elect to form a General Partnership. In a general partnership, the general partners determine how they will share profits and losses of the business, and enter into a written partnership agreement documenting these shares. The profits and losses of the general partnership then flow to the tax returns of the individual partners in accordance with the ownership percentages that are set forth in the partnership agreement. The partnership itself is not subject to any separate income tax.

However, despite the agreement between the partners in how to share profits and losses, each and every partner is exposed to the full amount of all liabilities of the business. This means that a creditor or plaintiff can collect the full amount of any claim or judgment from any of the general partners.

Limited Partnership:

The Limited Partnership form of business is similar to the General Partnership in that profits and losses are distributed to the partners and flow through to the tax returns of all partners in accordance with the percentages the partners determine in the partnership agreement.

However, some of the partners can be “limited” partners, meaning that they would not be subject to any personal liability for any of the debts or judgments against the partnership. There must be at least one general partner in the Limited Partnership, and this general partner will have unlimited personal liability. The general partner(s), but not the limited partner(s), will be responsible for management of the business.

Limited Liability Company:

A Limited Liability Company (or “LLC”) is comprised of one or more “members.” The ownership percentages, profit and loss distributions, and voting powers of each LLC member are determined by an agreement between the parties, which is generally reduced to writing. When the LLC is formed, it elects whether to be taxed like a partnership with profits and losses flowing through to the owners’ tax returns (as discussed above), or taxed like a corporation (as discussed below). The members of the LLC are protected from the liabilities of the LLC.

Corporation:

A corporation (perhaps the most well-known form of legal business organization) is owned by one or more “stockholders” and managed by a Board of Directors elected by the stockholders. The Board appoints officers who run the actual day-to-day business of the corporation. The stockholders, directors and officers of the company are generally protected from the liabilities of the company.

For tax purposes, there are two types of corporations: “C” Corporations and “S” Corporations. In a “C” corporation, the corporation is a separate tax entity, so the profits and losses of the corporation are taxed directly at the corporate level, and do not flow through to the tax returns of the stockholders. The “C” corporation may also be subject to a separate level of “franchise” tax at the state level. If the stockholders elect to be treated as an “S” corporation for tax purposes, then the corporation will be taxed as a partnership. This means that the profits and losses of the corporation will flow directly to the stockholders in accordance with their stock ownership.

There are also other differences between “C” corporations and “S” corporations, including the permissible number of stockholders for each.

How to Form:

In many situations, it will make the most sense to form your entity (if you decide to form a separate legal entity and not operate as a sole proprietorship) in the state in which you will primarily operate. Since partnerships, LLCs and corporations are separate legal entities, they can generally be formed in any state, regardless of where the business actually operates. However, organizing under the laws of the state in which you primarily operate will save you the cost and administrative burden of maintaining a “registered agent” in the state of formation.

The websites of many Secretaries of State contain a great deal of additional information on how to form in their state. In some cases, downloadable forms are available to assist, and sometimes entities can be formed directly through an online interface.

Other Considerations:

Depending on the type of business you’ll be operating, your state may require that you obtain and maintain certain additional licenses. Examples of these types of businesses can include daycare facilities, healthcare-related business, restaurants and catering businesses.

As your business grows, and you expand your operations into other states (including having employees in other states), you may need to “qualify” your business on those other states. This process is generally easier (and less costly) than forming the company, but you need to take care to do so correctly.

The Bottom Line:

As you start your business, make sure to take the time to consider how your choice in business form will affect your personal tax situation. Consider seeking professional legal and tax guidance so that you are comfortable making the correct decision based on your needs and concerns.

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Jeremy Gislason is a leading expert on membership sites, marketing and online business. For more Business Strategies, Tools and Information visit: http://www.MemberSpeed.com
 

Do you remember reading books as a child? What books did you enjoy reading? I enjoyed reading everything from history to mysteries to science fiction myself. I was also a big Dr. Suess fan when I was about 7 years old.

Living in the developed world we take it for granted that we can read pretty much whatever we want whenever we want. Just go down to the local library or bookstore. If you’re like me you probably have hundreds of books in your home library even.

Imagine how different your life would have been if you hadn’t had access to any books your entire childhood? Just think about that for a second…not one book…I bet your life would have been different as would have mine.

This is exactly what millions of children around the world in some of the poorest countries are experiencing every single day. However, one man named John Wood has been making a huge difference.

John discovered his passion, his greatest success, and his life’s work not at business school or helping to lead Microsoft’s change into Asia in the 1990’s but on a soul-searching trip to the Himalayas. He made the difficult decission to walk away from his lucrative career to create Room to Read, a nonprofit organization that promotes education across the developing world.

You can find out the full story by getting the book yourself here:

http://www.leavingmicrosoftbook.com/index.html

Have you read “Leaving Microsoft to Change the World” by John Wood? What did you think of it? Being wealthy is not the end goal, it’s what you do with your wealth that counts in this world…Leave your comments below.

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I’ve recently read a very inspiring book titled, “The Autobiography of Andrew Carnegie and his essay The Gospel of Wealth.

Reading this was like stepping back into time as it was all written by Andrew himself in his private diaries around 100 - 150 years ago. Compelling work of history, family, business and ethics all combined into one 336 page book.

I find it pretty humbling to find out that he was once the second riches man in the country, only to give away his entire fortune to charities at the end of his life and after his passing on. This man made fortunes then proceeded to give away most of his $350,000,000 in wealth.

He opened thousands of libraries, music halls and parks for the public to enjoy. These were great feats in his time as there were not many libraries around 150 years ago. Nowadays of course you can find one in most every town and city in developed countries.

His philosophies on creating the best products, providing outstanding customer service and doing business with partners is really insiteful to read. Pretty amazing to think he started out at $1.20 a week as a teen to go on to amass one of the largest fortunes in America in his time.

You can pick this up at Amazon.com or most bookstores, this new version was publishes in Nov. 2006.

Have you read this book or other books that inspired you? If so, post and share your comments.

Lots of great posts here, some went very deep (Mystery Lady and a few others) - while others may not have quite gotten the question here. Thanks to everything for posting your comments as they most likely helped others to think more.

And the MAIN goal was to get everything thinking at least, and that is the first step towards improving yourself and your life.

Ricardo Weatherly hit the nail on the head in regards to product creation when he said, “…if I was granted one wish that would come true for one year, it would be to have a product or service that the WORLD just can’t do without.”

When you can accomplish that, wealth will certainly follow. Keeping it going is another story.

Keeping the wealth and using the wealth towards the greater good for mankind can certainly lead to more happiness, success and health. Paul Slater made a good point when he said, “God said: “You’ve been granted one wish and one wish only. Whatever it is you wish for will absolutely come true for you instantly. You could wish to be successful, wealthy, wealthy, powerful, happy or free but you can only pick one.” Solomon chose . . . wisdom.”

 Yes, wisdom is very important, that is why so many wealthy families lose their wealth by the 3rd generation due to lack of wisdom from their inheiritors.

Marie Gervacio had some really good points on happiness, “What is there without happiness? If I had only one wish it would have to be happiness. Happiness attracts health, wealth and success. Happiness is power (power without happiness equals one tortured soul). Let me show you a bit about the power of happiness and it all begins with a smile.

Studies show that smiles ignite chemical reactions in your body to lower blood pressure, improve immune system, take away pain, make you feel good and balance your mood. So being happy actually helps keep me healthy. Being healthy makes it possible to work and play as much as I want.

Smiles make people appear successful and draw other people in. Happiness is a magnet for good things. The positive energy caused by happiness is powerful and can cause me to be as successful as I want to be. Happiness really is an empowering force.”

Well said, and Dr Hein Lambrechts also made some great points on happiness when he said, “…My choice is definitely HAPPINESS. By being happy, you experience a high vibration of energy. According to the Universal laws (especially the LOA), you attract more of the same.

Thsi indicates that you are going to attract more circumstances of the same, i.e. happiness. By being happy, you are going to attract other similar high energy vibrations, like success and wealth (so, even though I didn’t choose it, I will actually still get it). Happiness is freedom. To conclude - Happiness is my choice, because it will result in giving me all of the other.”

Michele Andree Lemieux and Georgie both would like to help others improve their health and wealth, very noble of them.

Judy Lorenz had some more interesting points on happiness, “…The word Happy as we use it today means being at peace with our surroundings, being ambitiously content, being calmly observant to make use of what has been presented to me, being able to let the day develop without my muscle pushing constantly for what might be a sorry outcome. To move forward on my faith, to acknowledge and appreciate those who work around me, to develop generous tolerance.

If I develop happiness as inner contentment, then I will have wisdom to not let success be abusive, to not let wealth be mismanaged, to not destroy my health with worry and stress, I will be free no matter what the everyday politics.”

Nezrul Hisyam said, “...It goes without saying that I choose FREEDOM above all. I love to be free.” but Marge Berkeyheiser really makes you appreciate your freedom (if you do have it) in your own countries when she said, “…Freedom to me is a very special word. It has nothing to do with money or power. It has everything to do with our husbands or wives,sons or daughters,brothers or sisters, aunts or uncles that are dying every day in a land not their own. They have the unselfish duty of protecting this country and this country does not always treat them so nice for there efforts. Freedom by no means is free. The price has been paid with the color of red. Freedom for the year ahead I would like to see not one more death…”

Carmen covered mindset well when she said, “…I don’t believe that these things are external, that they are out of our control. I believe that a person can have all of the things you mentioned, but they have to have the mindset to accept these things into their lives…”

 Again, lots of great ideas and comments, HOWEVER, Yvonne Gamache and John Turner seem to be the only ones who answered the task given by explaining how they would be better off in 12 months time with their business by using what they chose.

While they both explained how their business would be better off by the end of 12 months, Yvonne’s answer was not as detailed as John’s and she also lost 1 point by adding in some self promotion at the end of her post (sorry:))

So the winner of the $100 Amazon Gift Certificate for this round is John Turner….congratulations! We’ll be in touch with you on how to claim your prize.

We would like to encourage you to read all the comments given and to keep adding your own ideas. Check back here soon for the next think and win question:)

Watch The Next Internet Millionaire Episode II

Branding your business was the topic of episode II, this is something we have been getting more serious about ourselves in our own businesses. You may notice the SFW logo on the top left which has been there since we opened up end of 2004. We are also doing a lot of research in regards to branding for our other products and services as well.

This is something you should definitely consider for your own business. A good legal team can really help you out with trademarks and copyright issues as well.

What did you think of the contestants and Joel’s judgment at the end?

Who do you think has the most potential on the show?

I can pretty much already tell a few people who I would NOT want to do a JV with, maybe Joel feels the same way.:) Working as a team can be quite challenging, I know as we have over 20 people on our own team and it’s important to get everyone on the same page. Best thing you can do with a team is to utilize the talents each member can contribute.

Quick tip: Don’t ask your programmers to do your marketing and don’t ask your admin support to manage your websites.:)

You can watch more episodes of the Next Internet Millionaire here The Next Internet Millionaire by Joel Comm and company. Post your opinions below, what do you think of The Next Internet Millionaire reality show?