| "> | | | | earnings, which means you will be double taxed. That's |
| The name of the game is limit your liability. I put that in | | | | no good! An S-Corporation stops that from happening. |
| bold because it is very important. As an entrepreneur, | | | | So you will most likely want to form an S-Corp. |
| your going to take risks, a lot of them. Picture a | | | | Drawbacks to forming a corporation are paperwork, |
| corporation or an LLC as an artificial person that you | | | | record keeping requirements which very state to state |
| have created. Now all of the business you do, the | | | | and a large lack of flexibility. The main benefit from |
| bank accounts you open, the merchant credit card | | | | using an S-Corp is employment tax savings. So only |
| accounts you start and the lease you sign will all be | | | | the salary you collect can be taxed, not the profits you |
| through this artificial person. If for some reason the | | | | collect depending on the amount of shares you own. |
| business goes belly up or some one decides to sue | | | | - LLC (Limited Liability Company) - This is what I usually |
| you for any reason, they cannot go after you | | | | recommend to any entrepreneur who wants to start |
| personally. They can only go after the LLC or | | | | their own business. For all intensive purposes, an LLC is |
| corporation and its assets. So your car, your house, | | | | treated just like a corporation, BUT there is very little |
| your money outside of the company is safe! | | | | paperwork, almost no record keeping requirements, |
| If the business can't pay the bills, the business goes | | | | complete flexibility in ownership (have as many |
| bankrupt not you, unless you have signed personal | | | | partners as you'd like), you can distribute the profits |
| guarantees on anything (which they will most likely | | | | however you like and you are still protected by that |
| make you do when leasing a building, etc). | | | | "artificial person." Having that flexibility in ownership |
| Sole proprietorships are the exact opposite of what | | | | distribution can be invaluable to an entrepreneur as |
| we've discussed above. YOU are liable for your | | | | well. |
| business and anything that happens to it. I do not | | | | - Sole Proprietorship - Don't do it... |
| recommend this as your liability is far too great and | | | | So odds are you going to want to start an LLC. Don't |
| you have no artificial person protecting you. | | | | go to a lawyer or accountant to do that! They'll |
| Anyone can start an LLC or corporation, for just about | | | | overcharge you for a service that a monkey can now |
| any reason. Whether you have a blog, a restaurant, an | | | | do (I'm going to catch heat for that one)! There are |
| eBay business or you're a tutor, anyone can run their | | | | plenty of online services that you can set this stuff up |
| business through a company. In fact, it is very wise to | | | | on. I use They are very reliable and very fast. With a |
| do so. To provide a good example, I own a restaurant | | | | few clicks of the mouse and $150, you'll have your |
| and I have plans on opening many more. What should I | | | | very own corporation or LLC. A lawyer would charge |
| do? Open them all under my name or a corporation / | | | | you $2000. Being an entrepreneur is about saving |
| LLC. Both would be wrong. I would open each | | | | money, not spending it. Thank me later.... |
| restaurant under a separate corporation or LLC, | | | | On a final note, you can form your new LLC or |
| thereby limiting each restaurant's liability to themselves. | | | | S-Corp in any state you like, but I recommend forming |
| So if one restaurant fails, the others are protected | | | | it in the state you will be doing business in. Delaware |
| under their own corporations. That's something they | | | | and Nevada are both great places to form these |
| don't teach you in college! It is amazing how many | | | | types of entities because of their corporate laws and |
| novice entrepreneurs (my former self included) have | | | | lack of taxes, while California is probably the most |
| jumped recklessly into ventures and not considered | | | | unfavorable place due to their minimum tax of $800 |
| how to limit their risk exposure. It is a crucial element of | | | | (you have to an annual $800 no matter what, unlike |
| the game! | | | | most other states) and their higher corporate taxes. It |
| Now that you know why you need an LLC or | | | | all really depends on the business. Example: I own a |
| corporation...it's time to learn how...here is a very simple | | | | restaurant in California...I formed that LLC in California. |
| breakdown that will explain everything you need to | | | | The various internet companies I own are mostly run |
| know: | | | | through LLC's in Nevada and Delaware because |
| - Corporation - Planning on going public? Then this | | | | they're based on the internet, not an actual physical |
| might be for you. But if this is for a small business, you | | | | location. So why not benefit from less taxes and |
| will probably want to form an "S-corporation." If you | | | | better laws. |
| form a regular corporation, you will be taxed on both | | | | So that covers it all...now go start your company and |
| the corporate earnings as well as your personal | | | | get the ball rolling! |