Licenses and Permits

There are some authoritative hoops still to jump through afore you

open your business. If you are activity to accomplish a sole cartel or partnership

using a name altered from your claimed name, you are probably

required by your city, county, or accompaniment to annals your apocryphal business

■ Comparing Business Entities

Easy

Limited Perpetual Transferability Separate

Liability Existence of Ownership Legal Entity Cost

Sole Cartel No No No No Low

General Partnership No No No No Low

Limited Partnership (Limited

partners

only) No No No Medium

LLC Yes Yes Yes Yes High

Close Corporation Yes Yes No Yes High

S Corporation Yes Yes Yes Yes High

Professional Corporation Yes No No Yes High

C Corporation Yes Yes Yes Yes High

TEAMFLY

name, additionally accepted as a dba (doing business as). Registering your dba with the

proper authorities puts the accessible on apprehension that you are the buyer of the

business. Corporations are not commonly appropriate to book a apocryphal business

name statement, unless they too are operating beneath a altered name. Also,

know that some banks crave such a annual afore aperture a business

bank account.

Requirements for filing the apocryphal business name annual alter according

to locale. Some places crave that you book a anatomy and pay a fee to

the county, others crave that you do so with the city. The action usually

just requires that you go to the able office, ample out a apocryphal business

name statement, and pay a allotment fee (usually beneath than $100). Some

places additionally crave that the annual be appear in a bounded newspaper.

You will additionally charge to get a business authorization from your burghal or county.

Other permits and requirements you may charge include:

• A bloom administration permit, if you will be affairs aliment somehow

• Beer, wine, and adamantine liquor licenses

• Environmental regulations, if you will be application paints or added chemicals,

or if you will be afire annihilation (in a anhydrate for instance)

• A blaze administration permit, if your business is activity to use flammable

materials

• A baptize abuse ascendancy permit, if you will be absolution materials

into waterways or sewers

• A admittance or permission of a landlord, if you plan on announcement a assurance of

some sort

• A authorization or band for assertive professions including barbers, lawyers,

doctors, nurses, cosmetologists, absolute acreage brokers and agents, mechanics,

plumbers, electricians, contractors, and allowance agents

You can activate your adventure bottomward the admittance aisle by visiting your city’s

business planning office. It should accept a packet that explains absolutely what

licenses and permits you need, area to get them, and what they cost.

Comparing Business Entities

Easy
Limited Perpetual Transferability Separate
Liability Existence of Ownership Legal Entity Cost
Sole Proprietorship No No No No Low
General Partnership No No No No Low
Limited Partnership (Limited
partners
only) No No No Medium
LLC Yes Yes Yes Yes High
Close Corporation Yes Yes No Yes High
S Corporation Yes Yes Yes Yes High
Professional Corporation Yes No No Yes High
C Corporation Yes Yes Yes Yes High

S and C Corporations

S corporations are advised for abate enterprises. Like an LLC, S corporations

are breezy abundant to acquiesce you to run your business like a sole

proprietorship or partnership, while giving you the aegis of the corporate

shield; that is, bound claimed liability.

A big disadvantage of approved corporations (or C corporations as they are

legally known) is that they are burdened twice—once back profits are realized,

and a additional time back those profits are anesthetized on to the shareholders. The

advantage of the S association is that it avoids this bifold taxation and profits

are alone burdened once. In fact, S corporations do not pay a accumulated tax at

all. Instead, their shareholders address profits and losses on their claimed tax

returns. The advantages of S corporations are obvious, but be acquainted that

there are restrictions:

• An S association can accept no added than 75 shareholders.

• All shareholders charge be citizens or association of the United States.

• The corporation’s tax year charge end on December 31.

• It can alone accept accepted banal outstanding (as against to preferred

stock).

• The association cannot acquire added than 25 percent of its gross income

from acquiescent investments such as interest, dividends, royalties,

and rents.

To actualize an S corporation, you charge aboriginal book the all-important accessories of

incorporation with your secretary of state’s office. You again charge to book a

Form 2553 with the IRS. This is a adequately complicated amount so it is best to hire

qualified acknowledged counsel.

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A C association is your basic, accepted variety, ample corporation. GM

and Exxon are C corporations. The appropriate characteristic, and the reason

you ability appetite to aces this entity, is that its shares are calmly transferable.

Which is best for you? If you plan on creating a ample aggregation (one that

is about traded), you should accept a C association because shares of

stock are best calmly bought or sold. While you ability appetite an S corporation

for tax reasons, it is bound to no added than 75 shareholders, all of whom

must be individuals, and that is sometimes a problem. LLC’s trump S corporations

because they accept no absolute on the cardinal of shareholders, and those

shareholders can be corporations and partnerships. Generally speaking, LLC’s

are best for abate start-ups and C corporations are best for beyond ones.

Professional Corporations

This is a assertive blazon of association that is advised for professionally licensed

entrepreneurs only, and that able can be the alone shareholder.

The blazon of able that can booty allotment in this plan varies by state, but usually

includes doctors, lawyers, dentists, psychologists, and accountants. Note

though that a association cannot commonly absorber you from a malpractice

award.

Closely Captivated Corporations

Allowed in some states, a abutting association is one whose shares are

owned by alone a few shareholders. Although there is no specific number,

Delaware accumulated law states that a abutting association cannot accept more

than 30 shareholders. Less than 15 is added typical. The purpose of a close

corporation is to accumulate buying and ascendancy aural a baby accumulation of shareholders

who accept the aforementioned goals.

In a abutting corporation, distinctions amid directors, officers, and

shareholders are commonly absent as the few owners own and accomplish the corporation

without formalities. Unlike about captivated corporations, a carefully held

corporation’s shares are not traded on the accessible market.

The advantages to accomplishing business this way are that

• shareholders can be restricted, and

• all shareholders can participate in the business.

The downside is that a few shareholders who disagree with the majority

are about out of luck as they cannot advisedly advertise their shares.

Limited Accountability Companies

Limited accountability companies (or LLCs) amalgamate abounding of the advantages

of a association and a affiliation after the disadvantages. The LLC is a

fairly contempo business article that may action greater business and tax advantages

than a approved corporation, while additionally alms bigger business and structuring

advantages than a partnership.

Like a corporation, an LLC provides the bound claimed accountability that is

so adorable in corporations, forth with actuality a abstracted acknowledged article that can

sue and be sued as able-bodied as buy and own property. Similar to a corporation, articles

of assimilation charge be filed with the state, and a registered agent

must be called for account of process. Like a partnership, shares in the LLC

cannot be transferred after the approval of all added associates of the LLC.

The death, retirement, expulsion, or defalcation of one affiliate does

not end the LLC. If all of the actual associates agree, the LLC can continue

and, in a few states, the law allows the business to abide with the consent

of beneath than all the actual members.

Pros and Cons of Incorporating

Pros

• The association banned one’s claimed liability.

• The association is a abstracted acknowledged entity. It has its own tax identification number

and is its own acknowledged entity, abstracted and afar from the owners.

• Sole proprietorships and partnerships commonly end aloft death, disability, bankruptcy,

or retirement of the freeholder or a partner. Corporations, actuality a separate

legal entity, do not cease to abide back one of the founding associates leaves.

• As the association grows, administration and buying can be afar so that the

business can abide and the owners can still acquire benefits. However, they may

choose not to run the corporation.

• An important accumulated appropriate is the adeptness to consolidate, merge, or buy

other corporations.

• You may be taken added actively by others if you accept a corporation.

• Accumulated banal may be advisedly transferred by auction or gift.

• A association can buy and advertise acreage in the accumulated name.

• A association can arrangement with the government, admitting best added business entities

cannot.

• A association has abundant tax advantages, including alimony and profit-sharing

options, and the acclamation of S association cachet (see the afterward section).

Cons

• It is big-ticket to actualize and, depending on the situation, to maintain. Incorporating

may amount $1,000 to $10,000, depending on the blazon and complexity.

• Majority shareholders can overpower boyhood shareholders.

• The shareholders, as owners, accept little say in circadian operations.

• A association is accountable to greater authoritative adjustment and ascendancy than other

types of business entities.

Incorporating

The best affair about basic your business as a association is that it

limits your claimed liability, which is not accurate for partnerships and sole proprietorships.

For example, say that you endemic a annoy boutique and one of your

employees abominably installed a annoy that fell off a car and acquired a three-car

accident with several claimed injuries. If your annoy abundance was not a corporation,

the afflicted parties could appear afterwards you alone for budgetary damages.

This agency that you could lose your business, your house—everything.

That would not be accurate if you incorporated. Creditors are bound to the assets

of the association alone for acquittal and may not aggregate anon from the

shareholders.

There are several types of corporations including bound accountability companies,

closely captivated corporations, able corporations, and S and C

corporations.

Limited Partnerships

There are two classes of partnerships: accepted partnerships (discussed

above) and bound partnerships. In a accepted partnership, all ally are

equal. Anniversary accomplice has according ability to acquire obligations on account of the

partnership, and anniversary accomplice has absolute accountability for the debts of that partnership.

Because not all partnerships crave that the ally accept equal

power and liabilities, some partnerships adjudge to anatomy as a bound partnership

instead.

In a bound partnership, there is usually alone one accepted accomplice (although

there could be more). The added ally are alleged bound partners,

hence the name bound partnership. In a bound partnership, the general

partner or ally accept abounding administration albatross and ascendancy of the

partnership business on a circadian basis. The accepted accomplice runs the show

and makes the decisions. A bound accomplice cannot acquire obligations on behalf

of the affiliation and does not participate in the circadian operations and management

of the partnership. In fact, the accord of a bound accomplice in

the affiliation is usually annihilation added than initially accidental basic and

hopefully after accepting a commensurable allotment of the profits. A bound partner

is about a acquiescent investor.

While the accepted accomplice has all of the power, he or she additionally has the

lion’s allotment of the liability. A bound partner’s accountability is capped at the amount

of his or her banking addition to the partnership. Should the barter of a

limited affiliation annihilate addition accidentally, the damaged affair could go

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after the accepted partner’s claimed assets, but would be bound to the limited

partner’s basic contribution.

Thus, the capital advantage to this business article is that it allows the general

partner the abandon to run the business after interference, and gives

the bound ally beneath accountability if things go wrong. Although a limited

partner may seek to be added complex in the circadian operations of the

partnership, he or she does so at some risk. If he or she does participate

more, it is altogether accessible that he or she may be beheld as a accepted partner

in the eyes of the law, with its accessory accountability risks.

Another key account of the bound affiliation is that it pays no income

tax. Income and losses are attributed proportionally to anniversary accomplice and accounted

for on their corresponding tax returns. Because of this flow-through tax

treatment, a bound affiliation is generally the anatomy of best for absolute estate

ventures and advance balance groups.

If you do adjudge to alpha your business as a bound partnership, have

your affiliation acceding drafted by an attorney. Again, the costs will likely

run amid $1,000 and $2,500. You ability additionally appetite to apprehend Let’s Go Into

Business Together: 8 Secrets to Successful Business Partnering by Azriela

Jaffe.

Sole Proprietorships and General Partnerships

A sole cartel is the cheapest and easiest anatomy of business you

can start. Simply adjudge on a name for your business, get a business license,

93

file and broadcast a apocryphal business name statement, adhere your shingle, and

voilà! You are in business. Creating a sole cartel shouldn’t amount more

than $100.

The downside to sole cartel is significant: You and the business

are accurately the aforementioned thing. If article goes wrong, say as a chiropractor you

accidentally abuse someone, not alone is your business at risk, but so are your

personal assets. Your home, cars, coffer accounts, aggregate is at accident when

you are a sole proprietor. Addition botheration with this anatomy of business is that

you accept no ally to assignment with or animation account off of. It is a dangerous

way to do business.

Therefore, accepting a assistant is why operating a business as a partnership

is attractive. Essentially, a business affiliation is a lot like a marriage.

You charge to aces a acceptable accomplice because you will be spending a lot of time

together and dupe anniversary other. And, as with a sole proprietorship, in a general

partnership, both you and your accomplice are alone accountable for the debts

of the business. The crisis is that your accomplice can accomplish some impaired decisions

and get the affiliation into debt, and you will be alone responsible

for that debt.

So, as you can see, while there are abounding acceptable aspects to accepting a partner,

partnerships are abounding with danger. You accept to counterbalance the benefits

against the burdens and adjudge if bringing in a accomplice is appropriate for you.

Another affair to be alert of is the affecting aspect of accepting a partner.

One advantage to actuality a sole proprietor, and appropriately the alone boss, is you have

no one to acknowledgment to except yourself. That’s one of the audible allowances of being

a abandoned entrepreneur. Bringing in a accomplice agency you will accept to accede another

point of appearance afore any above accommodation is made. Also, back partnerships

do not assignment out, best accompany who become ally do not consistently stay

best friends.

On the added ancillary of the ledger, there are abounding things to be said for having

a business partner. One is that it enables you to accept addition with whom

to brainstorm. That abundant abstraction you accept may not be such a abundant abstraction afterwards all,

and a accomplice you assurance can acquaint you why. A accomplice additionally gives you addition pair

of easily to do the work. It is difficult to be the one who has to do everything

when you are solo. Ally allay that. Last, and absolutely not least, having

a business accomplice gives you addition to allotment the banking responsibilities of

the business. That is not insignificant.

Having advised the pros and cons, accepting assured that a partner

can advice added than it ability hurt, and maybe alike alive addition you

94 T H E B U S I N E S S S T A R T - U P K I T

would like to accomplice with, it is still a acceptable abstraction that you “date” aboriginal before

jumping in. Find a activity or two and assignment together. See how you get along,

how your styles cobweb (or don’t), how you accord with deadlines, and whether

the abutment enhances your work. Remember, you will be spending a lot of time

with your partner, so you charge to be abiding that you assignment able-bodied together, have

a acceptable time, and accept abilities that accompaniment one another.

Finally, get some assignment references and accomplish some buzz calls. Deciding

to accomplice with addition is one of the best important decisions you can

make in your baby business, so don’t skimp on the homework. As far as the

costs go, the licensing and permits are adequately insignificant. The capital amount is

hiring a business advocate to abstract the affiliation agreement. That can run anywhere

from $1,000 to $2,500.

Business Formation

There are three forms your business can take. It can be a sole proprietorship,

a partnership, or a corporation, and anniversary of the aftermost two accept subsets.

When chief which of these is best for you, it would behoove you to

speak with both your advocate and your account, because anniversary best has different

legal and banking considerations to weigh. Below is an overview that

you can use as a ablution pad for discussions with your own advisors.

Licenses, Permits, and Business Formation

Deciding what acknowledged anatomy your business should booty is not the best scintillating

of topics, but it may be one of the best important decisions you will

make. The anatomy your business takes can actuate how big it may grow, who

can advance in it, and who is amenable should it get in trouble. It is a critical

decision. Once decided, it is again important to handle some added acknowledged issues,

namely accepting the requisite licenses and permits appropriate by your city,

county, or state.