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What Do Entrepreneurs Gain From Incorporating A Business? by @DeborahSweeney

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Should you incorporate your business? Is it really necessary to incorporate if you want to run a business? As the leader of a business that specializes in document filing services, I hear the first question asked quite a bit by new and existing entrepreneurs alike. My answer is always a resounding ‘Yes!’ — and not just because it’s what I specialize in doing, either.

The second question is a little trickier to answer. In theory, you don’t have to incorporate a small business. Some entrepreneurs have side hustles that they choose not to incorporate. The reasons for this may vary. The gig, for instance, could be a side project you’re passionate about, but don’t make much money from or have a desire to expand into working on full-time. Another reason could be the incorporation process itself. This is often viewed as too time-consuming and boring to do… so entrepreneurs avoid doing it. However, entrepreneurs may not realize just how many benefits they’re missing out on simply because they chose not to incorporate.

Should you incorporate a business? Yes! Is it really necessary to incorporate? Also, yes! Let’s talk about all the great things you (and your business) gains from getting started.

Liability Protection

If you decide to form a limited liability company (LLC) or corporation for your business, these entities ensure that it receives liability protection.

What does this term mean, exactly? Liability protection maintains a separation between your professional and personal assets. If your business was delinquent on its debt, liability protection would ensure that personal assets, like houses and cars, were not impacted outside of the business.

Are there any entities that do not provide liability protection? The most prominent one is a sole proprietor. Many entrepreneurs incorporate under this entity due to its affordability. Acting as a sole proprietor also ensures that you, the business owner, are in control of the business. This kind of responsibility, however, means that any and everything that can happen — from accidents to product damages — holds you fully accountable. If the thought of unforeseen circumstances keeps you up at night, you may consider switching entities for liability protection.

Building Credibility

How do you feel after you’ve done business with a company that had an “Inc.” or “Corp.” in its name? There’s a bit of added trust that comes with shopping or investing with these types of businesses. Incorporating gives businesses an added boost credibility. This legitimizes the business, making it a win-win for both the company’s reputation and the trust customers are able to quickly establish with it.

Understanding The Structure Of Your Business

It’s not uncommon for an entrepreneur starting a business to ask themselves what type of business they want to own and operate. They have a pretty good idea of what their offerings will be and their given industry. What about the company’s legal structure?

Incorporating does more than provide liability protection, potential tax savings, and establish credibility for a small business. It also provides them with an entity that helps structure the company.

Let’s take a moment to compare and contrast what it means to incorporate as an LLC versus a corporation. An LLC provides a bit of added flexibility in its legal structure, such as the ability to choose an S Corporation as its tax entity. Forming an LLC is also ideal for small businesses that wish to stay small and independent. In the event that you choose to expand and would like to take the business public, you do not need to remain an LLC forever. You may change the entity to a public legal structure like a C Corporation when the time is right.

Corporations, on the other hand, are much more strict legal structures. Entrepreneurs that choose to incorporate as a corporation usually have big plans for their business, like raising capital, going public with an IPO, and expanding worldwide. A corporation would be the ideal entity for this kind of business structure. It allows entrepreneurs to accept money from investors, issue stock, and still keep the company protected through liability protection.

Incorporating Is Just The First Step!

Understanding the entity you want, and need, before incorporating your business ultimately provides it with a great foundation for success.

Don’t forget that you’ll need to check a few legal items off your to-do list after incorporating, too! Apply for basic business licenses that pertain to your company and its offerings, business insurance, an employer identification number (EIN), and any trademarks or copyrights necessary to protect your intellectual property.

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Deborah Sweeney – Legal Expert, CEO, MyCorporation.com – Calabasas, CA

As CEO of MyCorporation Business Services, Inc., Deborah Sweeney is an advocate for protecting personal and business assets for business owners and entrepreneurs. With her experience in the fields of corporate and intellectual property law, Deborah has evolved from lawyer to business owner. She has extensive experience in the start-up and entrepreneurial industry as she has been involved in the formation of hundreds of thousands of businesses for MyCorporation.com’s customers.

Ms. Sweeney received her JD & MBA degrees from Pepperdine University. She is active in the community and loves working with students and aspiring entrepreneurs. She serves on the Board of Regents at California Lutheran University and is a founding member of Partners of Pepperdine. Deborah has served as an adjunct professor at the University of West Los Angeles and San Fernando School of Law in the areas of corporate and intellectual property law. Ms. Sweeney is also well-recognized for her written work online as a contributing writer with top business and entrepreneurial blogging sites.  She is a regular contributor on Forbes, American Express, Social Media Today, and BlogHer among many others.

In her ‘free’ time, Deborah enjoys spending time with her husband and two sons, Benjamin (8) and Christopher (6). Deborah believes in the importance of family and credits the entrepreneurial business model for giving her the flexibility to enjoy both a career and motherhood. Follow her on Twitter @deborahsweeney and @mycorporation.

How to Expand Your Business Into Another City by @deborahsweeney

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Photo Credit: Ippei & Janine Naoi via Compfight cc

Photo Credit: Ippei & Janine Naoi via Compfight cc

by Deborah Sweeney | Featured Contributor

Expansion into a new city is simultaneously exciting and trying for any small business owner. You’ll naturally be excited to try your hand at a different market and grow your business, but expanding requires a heavy investment of both time and money with no guarantee that your business will fully catch on in its new environment either. It can be a bit scary to throw that much into a plan that may never pan out! However, if you approach expansion in the right way, you’ll be much better prepared and protected for whatever this expansion may bring.

Research the new market

Before jumping in, it’s important to do your research and know the ins and outs of any new area, even if you’re only looking to set up shop in a town fifteen minutes away from your original location. Who are your direct competitors in this market? Where are your customers? How do they shop? Does anyone even recognize your brand? The answers to these sorts of questions will help you figure out exactly what needs to be done, and whether or not you’ll have any sort of head start in your new city.

Make sure you have an EIN

You can probably run one business on your own, but if you want to expand, you need to hire someone else. So if you haven’t already, make sure you apply for a federal employer identification number so you can legally employee someone new. Once you hire, you need to remember that you are now also responsible for collecting payroll taxes and adhering to any state and federal labor regulations applicable to your industry. It is also a great idea to look for employees familiar with the new area you want to set up shop in. They could have some great insight into the market that you don’t.

Incorporate or form an LLC

I cannot overstress the importance of forming a separate business entity before taking on any debt, or making a serious investment in your company. Your business’s debts should be its own, and you shouldn’t have to worry about losing your house or personal property if your plans don’t work out. Limited liability companies and corporations are considered separate, legal entities, allowing the company to take on, and be responsible for paying, its own debt. Forming an LLC or incorporating, however, will mean your business has to qualify as a foreign business entity if the new city you are looking to expand into is in another state. Luckily, all you usually need to do to qualify is file a certificate of recognition from your home state, register as a foreign business entity with the new state, and pay a fee.

Apply for local licenses

Nearly every city with its own government requires businesses within its borders to file for a business license. This can get a bit annoying the further you branch out, but it is a legality that you can’t get around. Luckily, filing for a business license is pretty easy. Most cities just want to know what the business’s name is, where it will be located, and whether or not it needs any special licensing, like liquor or tobacco licenses. And, of course, city governments almost always ask for a licensing fee.

Standardize operations

One of the most difficult parts of expanding is ensuring that your brand doesn’t get muddled, but standardizing your operations early does help. Do you want your employees to greet customers a certain way? Dress in a particular color? Use a specific sales technique? You can’t be in two places at once, so you need to tell management and any employees how the business should be run. Write down any special rules you’d like your employees at the new location to follow, and train them so they know what’s expected.

Planning really is your greatest tool during expansion. Figuring out where and how you want to expand, and then protecting yourself during that expansion, makes the entire process much less stressful. So scout out possible areas, find potential new hires, learn what local licenses you need, and then commence expansion. Duplicating the success of your first location isn’t going to be easy, but knowing exactly what you are getting into will certainly make finding that same success more likely.

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Deborah Sweeney – Legal Expert, CEO, MyCorporation.com – Calabasas, CA

Deborah Sweeney Headshot

As CEO of MyCorporation Business Services, Inc. (MyCorporation.com), Deborah Sweeney is an advocate for protecting personal and business assets for business owners and entrepreneurs. With her experience in the fields of corporate and intellectual property law, Deborah has evolved from lawyer to business owner. She has extensive experience in the start-up and entrepreneurial industry as she has been involved in the formation of hundreds of thousands of businesses for MyCorporation.com’s customers.

Ms. Sweeney received her JD & MBA degrees from Pepperdine University. She is active in the community and loves working with students and aspiring entrepreneurs. She serves on the Board of Regents at California Lutheran University and is a founding member of Partners of Pepperdine. Deborah has served as an adjunct professor at the University of West Los Angeles and San Fernando School of Law in the areas of corporate and intellectual property law. Ms. Sweeney is also well-recognized for her written work online as a contributing writer with top business and entrepreneurial blogging sites.  She is a regular contributor on Forbes, American Express, Social Media Today, and BlogHer among many others.

In her ‘free’ time, Deborah enjoys spending time with her husband and two sons, Benjamin (8) and Christopher (6). Deborah believes in the importance of family and credits the entrepreneurial business model for giving her the flexibility to enjoy both a career and motherhood. Follow her on Twitter @deborahsweeney and @mycorporation.

How to Keep Your Business Compliant by @DeborahSweeney

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by Deborah Sweeney, CEO of MyCorporation.com

I cannot begin to stress how important it is to make sure your business stays compliant with the state. Small business owners have a tendency to procrastinate when it comes to filing important paperwork and paying state fees, but if your business falls out of good standing with the state you will have to pay, both monetarily and with your time, to get your company compliant again. It’s a much, better idea to instead just buckle down and stay on top of everything, especially these three required areas.

Your Estimated Tax Payments

You really don’t want to test the boundaries of government oversight when it comes to taxes and the IRS. Anyone who is self-employed and expects to owe more than $1,000 when they file their return has make quarterly estimated tax payments. If your business is a corporation and you expect to owe more than $500, you also have to make estimated tax payments. The IRS does provide instructions on how to determine estimated tax, and when payments are due – as a quick heads up, the next due date for 2013 is September 16th. For individuals, these instructions are part of the 1040-ES package, and for corporations the instructions are part of the 1120-W. Now, it is okay if your calculations are slightly off, but if you’re grossly underpaid you will be hit by some steep fines. Paying estimated taxes can feel a bit like trying to predict the future, so most accountants recommend you pay at least 100% of the taxes you paid last year. If you are really worried, re-estimate in the middle of the year (August is a good month to do this during) and see how close your estimates were to what you actually owed during the first two quarters.

Your Annual Reports

If you run your business as a sole-proprietorship, you don’t have to worry about annual reports – though we do recommend reconsidering your business structure. But, if your business is structured as an LLC or a corporation, most states will require you to file a report on your business and pay a fee every year. This report is meant to ensure that the information filed with the state, like who your registered agent is and where your business is located, is up to date. Not filing an annual report is one of the quickest ways to fall out of good standing, so make sure you always mark your calendar with when you need to file.

Respect Corporate Formalities

Neither sole-proprietorships nor LLCs have to worry about adhering to corporate formalities, though most business advisors suggest that LLCs should still hold annual meetings, adopt an operating agreement, and document any business decisions and financial activity for the sake of legal protection. Corporations, on the other hand, are required to adhere to strict, formalized operating procedures. When you form a corporation, you must hold an initial meeting for the directors to adopt bylaws, elect officers, and issue stock. After that, you have to have annual meetings for the directors and the shareholders, and keep the minutes for these meetings in your records. Business and financial activity must also be documented, and nearly any change to the business has to be adopted through corporate resolutions. It is easy to fall behind on the many formal requirements that corporations have to adhere to, but if the state looks into your records and sees you aren’t following the rules, they can revoke your status as a corporation. So keep detailed records and respect state requirements.

Staying compliant with the state can be a very time-consuming, arduous process, but it is something that every small business needs to do. Make sure you know exactly what deadlines you have to file by, how much money you have to send along, and what hoops you have to jump through to stay compliant. The last thing you want is to have to pay exorbitant fees and file a bunch of paperwork to get back into good standing, and putting in a little effort now will save you from having to worry and stress about your business’s standing later on.

Photo Credit: ♥beryl via Compfight cc

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About the Author:

Deborah Sweeney HeadshotDeborah Sweeney is the CEO of MyCorporation.com. MyCorporation is a leader in online legal filing services for entrepreneurs and businesses, providing start-up bundles that include corporation and LLC formation, registered agent, DBA, and trademark & copyright filing services. MyCorporation does all the work, making the business formation and maintenance quick and painless, so business owners can focus on what they do best. Follow her on Google+ and on Twitter @deborahsweeney and @mycorporation.

Why Are LLCs So Popular? by @DeborahSweeney

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By: Deborah Sweeney, CEO of MyCorporation.com

Back in 2010, Assistant Professor of Law Rodney D. Chrisman published ‘LLCs are the New King of the Hill,’ a groundbreaking study on the popularity and growth of the limited liability company, in the Fordham Journal of Corporate and Financial Law. The LLC structure is relatively novel in the world of business law and, as is pointed in the article, was a bit obscure in the nineties. However, Professor Chrisman’s research showed that, by 2007, LLCs were being formed at a much faster rate than any other business structure, outpacing corporations by a margin of nearly two-to-one. What fueled this meteoric rise? And why, of the various business structures available, are limited liability companies preferred by so many new businesses?

Protection

Many small businesses start out as sole proprietorships or, in some cases, partnerships. Once you file for a doing business as name, an EIN, and all of necessary licenses and permits, you’re pretty much ready to do business. The trouble is the business is then inextricably tied to you, or you and your partner if you have one. You are the business, and though you may be selling services or products under a different name, the business, its debts, its profits, and its liabilities are all yours. Traditionally, you would separate the business from yourself by forming a corporation. This turned the business into its own legal entity, which you then helped run. The business held its own debts, was paid a wage, and was taxed separately. In return, the business owner was afforded some protection in case the company went under or was sued. The LLC structure was not widely recognized until the late 1980’s, but once states began adopting LLC-related legislation, many business owners saw a golden opportunity. Forming an LLC afforded the owner, or owners, legal and fiscal protection without being as complicated or as expensive as a corporation.

Taxes

Corporations often fall victim to ‘double taxation’ – most states have a corporate tax rate that is levied against a corporation’s profits, and then shareholders have to pay personal taxes on whatever income they derived from the corporation. There is, however, something called an S-Corporation, which allows for the flow of profits through the business directly to the shareholders, thus avoiding the corporate tax. Unfortunately, an S-Corporation requires that you form a C-Corporation first. They can also be difficult to maintain and are subject to a litany of laws and regulations. An LLC, on the other hand, has a pass-through structure by default – and if, for whatever reason, the members don’t like that structure, they can also choose a different way to be taxed.

Simplicity

As was mentioned above, running a limited liability company is much simpler than running a corporation. There are no annual shareholder or member meetings, unless an operating says otherwise, and some states even allow LLCs to be set up with only one member. Regulations vary from state to state, but for the most part all you need is a well-kept record of major business decisions and a spreadsheet laying out the company’s finances. Most states also require LLCs to send in an annual report with updated information on the names and addresses of an LLC’s members and to pay a fee. Compared to the records you have to maintain in order to properly run a corporation, an LLC is a much, much simpler structure.

Some states are still trying to fully grasp what an LLC is, and what kind of protection it affords its members. But, for the most part, the LLC has become an accepted, respected, regulated legal structure, and small businesses all across the United States have chosen to form an LLC to take full advantage of the protection it affords them. LLCs will, undoubtedly, continue to be one of the most popular business structures barring a serious reform of corporate law thanks to the structure’s simplicity, its ability to shield its members, and its tax structure.

Photo Credit: Cavan Images via Compfight cc

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About the Author:

Deborah Sweeney HeadshotDeborah Sweeney is the CEO of MyCorporation.com. MyCorporation is a leader in online legal filing services for entrepreneurs and businesses, providing start-up bundles that include corporation and LLC formation, registered agent, DBA, and trademark & copyright filing services. MyCorporation does all the work, making the business formation and maintenance quick and painless, so business owners can focus on what they do best. Follow her on Google+ and on Twitter @deborahsweeney and @mycorporation.

Order Up: The 3 Best Legal Structures for Small Restaurants by @DeborahSweeney

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by Deborah Sweeney, CEO of MyCorporation.com

Ready to start up a restaurant or food truck this summer? Before you begin exploring empty lots and scouring the streets for high foot traffic areas in an attempt to find the perfect location for your new eatery, independently owned and small chain restaurants must look into what type of legal structure they should become. While there are several different options available, business owners can’t pick one at random and leave it at that. They have to research what legal structure is the best fit for the size of their business, whether or not the structure offers liability advantages and if there is flexibility when it comes to taxes.

Here are three business structures perfectly suited for individuals running the show solo, working alongside a partner and for those ready to open up a small multi-unit chain set of their very own.

1) Sole Proprietorship

You’re the boss but you’re also your own biggest gamble if you decide to set up a sole proprietorship; a legal structure that holds you completely liable for all of the company’s debts. Foodservicewarehouse.com sums sole proprietors up as a business entity that legally has no separate existence from its owner. The positives of working within a sole proprietorship include that of all of the structures, it’s the most affordable and easiest to establish and if you are prepared to take on a high amount of responsibility alone, you get to exercise complete control over the restaurant. But owner beware: with no tax or liability assistance on your side that those within partnerships or LLCs enjoy, if the restaurant is sued or has legal action taken against it, the owner is held completely responsible. Not enough money to pay off the debt accrued? You may wind up losing the restaurant and possibly other collateral in the process like your car or home.

2) Partnership

Pairing up with a family member or a friend to co-open a fun new eatery? The partnership is the ideal legal structure if two or more individuals decide to set up a restaurant together. Teamwork is a big plus in establishing a partnership’s corner as the partners within the structure are allowed to share profits and losses, which according to Starting a Restaurant’s Guide include hiring employees and borrowing money. Members of a partnership are also legally liable for their actions as well as the actions of their business partner’s. But you may also have more trouble with taxes and liability than one would have under a corporation.

3) Limited Liability Company (LLC)

Do you still want to open a chain of restaurants alone and are willing to put more money and time into it than chance the risk of being a sole proprietor? The Limited Liability Company (LLC) route is the best way to go. With characteristics of both a corporation and a partnership, LLCs offer flexibility by way of tax-treatment for the entity you decide to tax your profits as, the ability to split the profits made in any way you like, and also personal liability protection (this means not having to say goodbye to your house if things go awry). The money you put into the LLC is the only amount put at risk, unlike a sole proprietorship in which a lawsuit could take away your restaurant, legal action may not do the same under an LLC.

Unfortunately, while owners within LLCs are referred to as members, LLC structures may not be made public. Switching to a C-corporation later on is your best bet if your restaurant takes off. You may also consult an attorney and an accountant if you need additional legal and financial advice for the taxes, liability, and financing that fit into the goals of your restaurant.

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Author Bio:

Deborah Sweeney HeadshotDeborah Sweeney is the CEO of MyCorporation.com. MyCorporation is a leader in online legal filing services for entrepreneurs and businesses, providing start-up bundles that include corporation and LLC formation, registered agent, DBA, and trademark & copyright filing services. MyCorporation does all the work, making the business formation and maintenance quick and painless, so business owners can focus on what they do best. Follow her on Google+ and on Twitter @deborahsweeney and @mycorporation.

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