| The type of business structure you organize for your | | | | Identification Number is not needed (use Social Security |
| new enterprise is greatly determined by your | | | | Number) when filing taxes. |
| personality, realities, needs and experience. Millions of | | | | Partnership |
| people in the United States never enter into any type | | | | When two or more people decide to enter a |
| of formal business structure. This includes the bulk of | | | | partnership, they basically agree to enter a form of |
| the black or underground economy. | | | | marriage. We all know that marriages can get messy. |
| It is estimated that the underground economy consists | | | | Partners must minimize any possibility for a messy |
| of about 10% of all commercial activity in the United | | | | divorce by creating a partnership agreement that |
| States. This includes legal and illegal activities. A kid | | | | details what each partner brings to the opportunity |
| cutting your grass for $20 is technically working black. | | | | (investment, sweat equity, intellectual property, etc.). |
| The handyman that repairs your patio for cash might | | | | Also, the partners responsibilities (silent, working, sales, |
| be working black. Drug dealers are definitely kingpins | | | | marketing, production, etc.), and an agreed split of |
| of the underground economy. | | | | income, profits and harvest, as well as liabilities and |
| Entrepreneurs should not want to work black, but | | | | losses. |
| should seek to be totally transparent for many | | | | I like, and often recommend, a partnership for young |
| reasons. The reason a person typically seeks to | | | | entrepreneurs with limited, narrow experience. |
| become an entrepreneur is to maximize the | | | | Operations experience often does not translate to |
| opportunity our capitalist system offers each person | | | | sales and marketing for instance. The only imperative |
| willing to try. This means playing by the rules, | | | | is that there are no surprises after the enterprise |
| competing and pursuing success utilizing every | | | | succeeds, or fails. This when a cloudy division of |
| available legal tool. The opportunity to sell a successful | | | | liabilities or profits often becomes problematic. |
| entrepreneurial business is almost zero without | | | | Limited Liability Corporation (LLC) |
| complete books, records and tax returns, typically | | | | Again, there are "do it yourself" methods of creating |
| details that underground business works hard to avoid. | | | | LLC's. Use an attorney. I am no friend or fan of the |
| I recommend any new entrepreneur seek consultation | | | | legal profession. I am not a lawyer, either. I just know |
| with an attorney familiar with the laws and regulations | | | | from experience that this is difficult: and often a |
| of the state, county, city or township of your residence. | | | | contentious area of law that requires expertise. |
| Even if you are planning to run your enterprise as a | | | | An LLC limits the owner's exposure to some losses. |
| sole proprietorship, there are local zoning laws, | | | | The LLC also enables the owner to treat income |
| restrictions on business activity, public announcement | | | | beneficially for tax purposes. Professional legal and |
| requirements, DBA (Doing Business As), fictitious name | | | | accounting assistance is really important in establishing |
| ordinances, etc. Do not try to avoid the pesky forms | | | | the LLC in a proper legal format. |
| and filings required in most localities. If compliance is a | | | | Corporation |
| hurdle for you, then success prospects for you as an | | | | The Corporation offers the most comprehensive |
| entrepreneur are probably slim. | | | | protection for the owners. Losses accrue to the |
| Your investment in the attorney consultation will pay | | | | Corporation, in most cases. The Corporation assumes |
| for itself. You can go online, or visit the business | | | | the role of a person, even though abstract. A |
| section of the local bookstore and find just enough | | | | Corporation requires the filing of Articles of |
| information to get yourself in trouble in these areas. | | | | Incorporation in a state. Consult an attorney for advice |
| Occasionally, I meet an entrepreneur that did not | | | | on which state to file this document. Nevada offers |
| consult professionals, and has everything in order. This | | | | secrecy. Delaware is most popular for large |
| is very rare. More often, I meet shortsighted dreamers | | | | corporations. Each state has different fees and |
| trying to cut a corner and save a few dollars. | | | | requirements. Get good help! |
| Professional help will save you time, money and | | | | The Incorporation requires a fair amount of |
| mistakes. | | | | housekeeping. This includes appointing a board of |
| Here are the most common business structures that | | | | directors, keeping meeting minutes, issuance of stock, |
| entrepreneurs have access to when formalizing their | | | | etc. Many startups convert to corporate status after |
| new venture. | | | | achieving some amount of success. |
| Sole Proprietorship | | | | There are other intricate options, trusts and arcane |
| This is the most commonly utilized structure for new, | | | | structures available. However, for 99.9% of all |
| small, startup business ventures. Essentially, the | | | | entrepreneurs the four discussed here offer the best |
| proprietor, you, the entrepreneur, announces that you | | | | vehicles for properly structuring a new business. |
| are working alone. The sole proprietor accounts for all | | | | Approach each with the goal of maximizing your |
| income from sales as personal income and is | | | | income and minimizing your time commitment to |
| responsible for all debts incurred by the enterprise. | | | | housekeeping the entity you choose. Remember: in |
| Personal and business funds are often commingled in | | | | order to be successful as an entrepreneur will require |
| this structure and need to be identifiable for tax | | | | every scintilla of your thought, work and creativity to |
| purposes. There is no formal corporate entity, but you | | | | be concentrated on your project. |
| must adhere to all local laws and statutes. A Federal | | | | |