Start Your Business the Right Way
Make a Plan
- Network – Consult with friends, family, and others who own businesses or operate in your field. Build your idea with the benefit of the knowledge and the experience of others.
- Plan – Although this may be a labor intensive step, it will allow you to make some of your mistakes on paper before committing. We strongly recommend making a formal Business Plan to flush out the details of your business, which should include:
- Business Purpose.
- Services Provided.
- Marketing Plan.
- Management Structure.
- Financial Requirements.
- Start Up Projections.
- Ongoing Financial Projections.
Choose the Right Form for Your Business
(See chart below for greater detail)
- Sole proprietorship – If you are the only owner of your business and just start up without filing anything with the Secretary of State, this would be the simplest form of ownership.
- General Partnership – If you own the business with others, or share profits, but do not file with the Secretary of State, this is the simplest form of ownership.
- Limited Liability Company (LLC) – Shields the owners, called members, from personal liability for the debts of the business. This requires filing with the Secretary of State.
- Corporation – Assumes a traditional corporate structure to simplify transactions. Owners, called shareholders) are shielded from personal liability from the business’ debts.
Funding Your Business
- Borrowing – You can seek a traditional loan from an individual, bank, or credit union. This typically requires some collateral, a down payment, and monthly payments. The cost of this method is in interest.
- Equity – You can also capitalize by partnering with others who are willing to make capital contributions to the business. The details of this varies depending on your business form:
- General Partnership – Partner with the contributor by agreeing to share profits and control of the business. Under these circumstances it is best to have a partnership agreement.
- LLC – Make the contributor a member of the LLC, which gives him or her a share of profits and control in exchange for the capital contribution. You will need to have an operating agreement.
- Corporation – Selling stock in the corporation to shareholders.
- Crowd Funding – A new popular form of capitalization, where the owner promises products, services, and/or recognition to anyone in a large population in exchange for usually smaller sums of money. Kickstarter, Indiegogo, Rockethub, and GoFundMe are some examples of popular crowdfunding websites.
Although your choice of business form may limit your personal liability, the best way to limit liability to both you and your business is to purchase adequate insurance coverage. Contact a local insurance agent for the appropriate coverage for your business. Such insurance may include:
- Professional liability insurance.
- Property insurance.
- Workers Compensation insurance.
- Product liability insurance.
- Vehicle insurance.
- Business interruption insurance.
Comparing Basic Corporate Forms
|Sole Proprietor (one owner only)
|The owner manages all aspects of the business
|The owner is fully liable for all business debts.
|The owner has the power to retain all profits.
|The owner is taxed for all profits.
|None. But best to have a partnership agreement.
|The partners manage all aspects of the business.
|The partners are fully liable for all business debts.
|Partners share profits and losses equally by default, or as the partnership agreement indicates.
|The partners are personally taxed for all profits
|1. File Articles of Organization.2. Sign and keep in force an Operating Agreement.
|Two options to be set out in Articles of Organization:1. Member Managed – where all members take part in management.
2. Manager Managed – where a manager runs the day to day operations of the business.
|Members’ liability limited to investment in the business (not personal liability).
|Members share profits and losses according to the Art. of Organization.
|Two options:1. Double taxation – the business is taxed at the company level, then members are taxed as profits are distributed.
2. Pass through taxation – profits are taxed only when distributed to members.
|1. File Articles of Incorporation. Sign and keep in force Corporate Bylaws.
|– Shareholders elect Board of Directors.– Board of Directors make major business decisions and elect the Corporate Officers.
– Corporate Officers (President, VP, Secretary, Treasurer) make day to day decisions.
|Shareholders’ liability limited to contributions to business (no personal liability).
|Shareholders may receive dividends.
|Two Options:1. Double Taxation – the business is taxed at the corporate level, then shareholders are taxed on profits.
2. Pass through taxation – profits are taxed only when passed on to shareholders.