Mark Bolyard

When creating a business, one of the most important steps you must make is naming it. Typically, you should name your business to portray what your business is about, and make it easy for customers / clients to remember.

Once you select a name, you then need to decide how your business is going to operate. Under what entity will you do business. Below are a few explanations of different types of business entities you may form your company under. Don't worry, should you choose a name for your business, and later change focus, there are separate entities you can create rather inexpensively to reflect your new focus.

Sole Proprietorship

A sole proprietorship is definitely the easiest, and the cheapest form business entity. Operating as a sole proprietorship allows you to open your business immediately, as you are the only employee, and taxing is pass through, meaning you do not have to file separate documents or obtain a new tax account for your business. The downside to operating a business as this type of entity is you have no protection at all between you as a individual and your business. If you become involved in a lawsuit, both your personal assets and your business assets are at risk. Furthermore, you have no tax benefits operating as a sole proprietorship.

Partnership

A partnership is very easy to form. General partnerships can be formed with no paperwork.. yes, it's a easy as a verbal agreement! There are no filing requirements with the state. In a partnership, both partners are fully liable for the actions of the other partner. Limited partnerships operate the same as general partnerships, however one partner has to be responsible for everything and they risk their liability protection. Limited partnerships do require that you file with the state a limited partnership agreement. Both general and limited partnerships enjoy the benefits of partnership taxation.

Corporation

A corporation is a separate entity and therefore carries with it limited liability protection for its owners or stockholders. It has perpetual life and is a tax paying entity. Double taxation is a potential negative feature as earnings are taxed at the entity level and then taxed again when distributed to the stockholders as dividends.

A corporation is formed by filing Articles of Incorporation with the Secretary of State. Shares of stock are issued to the shareholders, bylaws are adopted, and a board of directors is elected. The board of directors manage the corporation and appoint officers (president, secretary, treasurer) to maintain the ongoing daily affairs. The laws require regular director and shareholder meetings be held, minutes of those meetings be kept, and any decisions made at those meetings be formalized in the form of written resolutions. Failure to maintain these records will jeopardize the corporate status and leave the stockholders vulnerable to personal attack and responsibility for tax liability and corporate debt.

DBA

For those of you that form a business entity, and the company focus changes; a DBA is right for you. DBA (Doing Business as) allows you to legally do business under a fictitious name. DBA's are generally recognized in the state in which they are filed in. The fee is minimal ($25.00 here in Maryland), and allow you to do business under a name more suited towards your business' focus.

Jay

Thanks for the info..

OrchardInvesting

I've rarely seen many circumstances where it wasn't a good idea to make the jump to one or another corporation type as early as possible.

I've seen too many start-ups fail due to liabilities beyond their control, or due to getting that "one bad customer" that killed their business. And in this context, even a billion-dollar company can be a bad customer if they're insisting on lengthy payment terms, issuing constraining terms and contracts, or making unrealistic demands.

Better to protect yourself from the outset. We all get into business to make money and support our families, why would anyone leave themselves unprotected?

The answer is always money. New entrepreneurs think that incorporating is something they can do later, and an expense they can find the money for later. 80% of small businesses fail in the first year, so this is seldom the case, and often times these budding businessmen find themself saddled with the business' debt, or in trouble with the IRS, which could be avoided if only they'd paid the lousy $1000 or so to get a corporate attorney and have the paperwork filed.

Matthew S

I would have to go with solo. I can work better when I am on my own. The benefit I do get from having others work with me is like an boost. Something that keeps me going.