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How to Transition From a Sole Proprietor to an LLC by @DeborahSweeney

March 27, 2020 by Deborah Sweeney Leave a Comment

by Deborah Sweeney | Featured Contributor

Is it ever too late to change the legal structure you initially incorporated as? Not at all. The entity formed for a business at its offset does not need to be its formation forever. Entrepreneurs have the option to change structures that best fit their needs, and many begin as sole proprietors. For those that are ready to make the leap from sole proprietorship to another entity type, like an LLC, here are a few tips to keep in mind.

1. Determine if you are truly ready to opt out of being a sole proprietor.

There are certain aspects of incorporating as a sole proprietorship that cannot be found in other legal structures. A couple perks include the ability to be the sole owner of the business and call the shots. This allows entrepreneurs to exercise complete control over their startup and truly act as the boss. A sole proprietorship is the easiest legal structure to form with a simplified tax process and affordable filing fees. It’s also a great entity if you run a business from home, like an Etsy shop or as an online consultant, where you don’t need a physical storefront.

However, the biggest drawback to remaining a sole proprietor is that there is no separation between personal and professional assets. The owner is liable for everything that happens within the business. This can include everything from losing valuable information to assuming the company’s debts and even being served with a lawsuit. Without liability assistance, it can be tough for an entrepreneur with a sole proprietorship to expand their business and protect their assets.

2. Decide whether an LLC or another entity formation is your best fit.

Before you can incorporate as a limited liability company (LLC), you’ll need to determine what each entity can bring to the table and your business.

As one of the most popular entities, an LLC allows entrepreneurs to keep their personal and professional assets separate. This is especially helpful in the event of an unforeseen circumstance and provides a growing startup with an extra cushion of liability protection. It also provides flexibility in being able to choose either an S Corporation or C Corporation as your tax entity. For those that qualify as an S Corporation, careful planning will allow you to avoid paying significant employment taxes. Keep in mind, however, that it’s not enough to incorporate as an LLC and be completely done with the process. You’ll also need to apply for permits (like a Sales and Tax permit, per obligations in your city, county, or state), business licenses and insurance, a DBA (Doing Business As name), and an EIN (Employer Identification Number).

For those with big expansion plans, a corporation offers the best of both worlds. You’ll receive liability protection for professional and personal assets within a formal business structure. This entity allows potential investors to invest capital into your business, provides the ability to issue shares, and makes it possible to take your business public. As far as taxes go, what you pay in taxes is based on what you choose to pay yourself from the corporation. You also have the option to elect an S Corporation status after incorporating to tax the shareholders, instead of the income of the corporation.

3. Look into a partnership.

Want a little extra support? A partnership is tailor-made for entrepreneurs that want to go into business with a partner, whether that’s a family member or friend. This structure allows entrepreneurs to share profits and losses with a partner and make decisions together.

Keep in mind that much like a sole proprietorship where you are liable for everything within the company, in a partnership you are liable for decisions made along with the actions of your business partner. Consider drafting a written partnership agreement together. This will allow you to establish partnership terms and outline capital contributions from each partner and their percentage of ownership in the company. You may also further detail the rules for admitting a new partner and outline procedures for the voluntary and involuntary withdrawal of the partner.

Once you have determined which entity formation you’d like to transition to, begin filing the proper paperwork with your local Secretary of State and pay the associated filing fee to make the changes.

Deborah Sweeney is the CEO of MyCorporation.com which provides online legal filing services for entrepreneurs and businesses, startup bundles that include corporation and LLC formation, registered agent services, DBAs, and trademark and copyright filing services. You can find MyCorporation on Twitter at @MyCorporation.

Deborah Sweeney

www.mycorporation.com

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

March 26, 2019 by Deborah Sweeney Leave a Comment

by Deborah Sweeney | Featured Contributor

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.

Deborah Sweeney

www.mycorporation.com

How to Merge Your Small Business with Marriage by @DeborahSweeney

July 3, 2017 by Deborah Sweeney 1 Comment

by Deborah Sweeney | Featured Contributor

As wedding bells ring this summer, couples everywhere are saying more than just “I do” to each other. For entrepreneurs tying the knot, it can be a huge adjustment to marry the love of your life while remaining in a committed relationship with your passion project. How can you ensure that both your business and marriage soar instead of crumbling to pieces? Before you head down the aisle, check out these tips for ensuring you’re able to get the best of both worlds.

Put your marriage first.

The unfortunate reality of marriage and startups is that half of these relationships fail. But why do so many entrepreneurs get divorced? Inc. revealed that the most common causes are financial strain, neglect, divergent goals, and a lack of communication. Any of these causes would be detrimental enough for couples in traditional 9 to 5 jobs, but it’s especially tough for entrepreneurs who invest long hours and energy working on their business.

Much as you may love your startup, do not let it take the place of your marriage as your top priority. Instead, find the balance between being married and running a business. Determine the best methods for devoting time and hard work into both areas so you feel fulfilled on a personal and professional level. If you work from home, know when to unplug and spend quality time with your spouse. Incorporate them into your everyday routine by going on walks, having lunch together, or going on a long weekend getaway.

Incorporate your business (if you haven’t already)

While a business that has not been incorporated does have a more simplified tax process and allows you to exercise more control, your personal assets are also highly at risk. Unincorporated businesses do not keep personal and professional assets separate. Without liability assistance, if your business declares bankruptcy or falls behind on your loan payments, your personal belongings like houses and cars could be at risk — and that’s the last thing any newlywed wants repossessed.

Take the time to incorporate or form an LLC for your business so that you are able to keep professional and personal assets separate. Additionally, if your business is particularly successful you may find it’s a good plan to hire legal help to put together a prenuptial agreement. This written agreement will work to provide an extra cushion of protection for your business.

Communicate, communicate, communicate!

As mentioned earlier, a lack of communication in a marriage can truly destroy the relationship and the business. Before you get married, sit down with your partner and have an open discussion about your startup and where you are at in it. Discuss long and short term goals for the business, a plan B (should you need one), and what your current financial situation looks like (whether you’re using your own personal bank account or joint assets and if you have any existing loans or bills) so that there are no surprises later on. Communicate daily with your spouse to check in personally and professionally and keep the dialogue going by being open to feedback from their end.

In a recent study from Wells Fargo, it was revealed that 80% of millennial entrepreneurs plan to grow their business over the years and pass it down to their children. While being an entrepreneur, or being married to one, is certainly not easy, the beauty of starting a business is that there’s a great infrastructure therein to ensure a secure legacy for future generations in your family. And in the end, that’s the best kind of happily ever after an entrepreneur can create for anyone.

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

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.

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Deborah Sweeney

www.mycorporation.com

5 Tax Deductions Self-Employed Workers Need to Take Advantage Of by @DeborahSweeney

January 4, 2017 by Deborah Sweeney Leave a Comment

by Deborah Sweeney | Featured Contributor

One New Year’s Resolution that many entrepreneurs probably have at the top of their list is to get a head start on filing taxes. For the self-employed especially, the clock is ticking to get paperwork organized and determine how many business expenses are eligible for deductions. The tax deduction rule of thumb is that the expense must be ordinary and necessary, meaning that it should be accepted in your line of work and also appropriate for it. Here’s a look at five deductions self-employed workers should take advantage of in 2017.

Home office

Do you work out of your home office or use a part of your home for business? You might qualify for a home office deduction, available for all types of homes and homeowners as well as renters.

If you want to qualify for a home office deduction, you need to use that part of your home as a principal place of business exclusively and regularly. The deduction is typically based on the percentage of your home where it is used for business. Choose between the following two available options in order to determine the home deduction percentage.

Regular Method: This method determines actual home office expenses including areas like mortgage interest, insurance, utilities, and repairs. You can figure these out on Form 8829 Expenses for Business Use of Your Home and then report the deductions on line 30 of Form 1040 Schedule C, Profit or Loss From Business.

Simplified Option: Better known as the Simplified Option for Home Office Deduction, this helps simplify the calculation for the business use of your home. This method allows for a standard deduction of $5 per square foot of home used for business, up to 300 square feet. If you know that you work out of a space that is larger than 300 square feet, consider using the regular method instead.

Standard mileage rates

If you spend a lot of time driving to meet with clients, your expenses for operating a vehicle for business could be deductible. Here’s what the 2016 standard mileage rates for cars, vans, and pickups looks like for business, medical, and moving purposes.

54 cents per mile for business miles driven, down from 57.5 cents for 2015
19 cents per mile driven for medical or moving purposes, down from 23 cents for 2015
14 cents per mile driven in service of charitable organizations

Remember that if your employer reimburses your travel, you can’t deduct that expense. However, if you are only reimbursed for a small portion of the standard mileage rate, you will be able to deduct the excess amount per mile.

Health insurance premiums

According to the IRS, anyone self-employed with a net profit for the year may qualify for health insurance deduction. Keep in mind that this is not an itemized deduction, but an adjustment to income on premiums that you paid on a health insurance policy. Use Form 1040, Schedule A, Itemized Deductions to include the remainder with any other medical expenses as an itemized deduction if you haven’t claimed 100% of your paid premiums.

Website and software

Being self-employed means working hard to set up a professional online presence. If you created a new website over the last year or purchased software programs that you use in your line of work, you can deduct these expenses. Website deductions may include domain fees, maintenance, and/or building costs.

Incorporating your business

If business boomed this year and you incorporated or formed an LLC for your services, congrats! That’s a major step forward in protecting your personal assets as well as the professional assets of the business. It’s also acknowledged by the IRS for deductions. Some of the expenditures that you are able to write off during the business’ first year include state fees and legal costs. My recommendation is that if business is seriously picking up, take the time to incorporate or form an LLC for it. Saving a little extra money during tax season, plus asset protection and legitimacy for your brand — it’s a win-win for starting 2017 with a bang!

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

Deborah Sweeney

www.mycorporation.com

How to Expand Your Business Into Another City by @deborahsweeney

January 6, 2014 by Deborah Sweeney 1 Comment

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

www.mycorporation.com

How to Give Your Start-Up a Head Start in 2014 by @DeborahSweeney

December 9, 2013 by Deborah Sweeney Leave a Comment

by Deborah Sweeney, CEO of MyCorporation.com | Featured Contributor

Most people tend to feel a bit lethargic around December. The year is drawing to a close, and holiday plans take us away from the worries of business. The owners of start-ups often approach the end of the year as the end of the first chapter of their business – they’ve had a few months to iron out the kinks and, starting January, can throw themselves into the company and turn it into the business they’ve always dreamed of running. Unfortunately, if you don’t use December to get ready for January, you’ll wind up spending months trying to play catch-up. Rather than let December float by, use this checklist to give your business a head start on January 1st.

Incorporate or Form an LLC

Turning your business into its own separate, legal entity is almost always my top tip for start-ups. Forming an LLC or incorporating may have seemed like a waste of time and money back when you were first starting out and weren’t sure if you’d still be in business in a week, but now that your business is really starting to get going, you need to separate your business’s debts from your personal assets. It takes a lot of money to get a company started, and you’ll probably be looking to grow even more in the New Year. Creating a limited liability company or a corporation puts your business in the perfect position to receive loans, without the new debt threatening your own personal assets.

Remember Your Renewals

The state should send notice when legalities like a DBA name or a business license are coming up for renewal, but you shouldn’t depend on the state to remember every little thing when it comes to your business either. Whenever you file for anything that can come up for renewal, you should write down the date you have to renew by. So, if you haven’t already, look up those renewal dates, set aside the fees you need to pay, and don’t let your company fall into non-compliance because of your forgetfulness.

Draw up Employee Agreements

If 2013 went well, you’ll probably be looking to hire in 2014. Remember that you need an EIN before you hire any employees, and you’ll be responsible for any state and federally mandated tax withholdings. You should also look into drawing up an employee agreement or contract so that anyone you hire is aware of their responsibilities, any benefits that are offered, and the grounds for termination. An official employee-employer agreement may seem like a lot of work to create, but it does wonders for protecting your relationship with your employees, and ensures everyone is on the same page.

File for Intellectual Property Protection

Do you have a logo? A jingle? A company mascot? Have you built up any sort of branding? If you have, you need to file for intellectual property protection. You automatically have rights to any intellectual property you’ve used to market your business, but it can be difficult to enforce these rights without registering with the United States Patent and Trademark Office, or the US Copyright Office. Filing a trademark or a copyright can take quite a bit of time, so it is important to get started now, or to contact an attorney or other professional to help.

Prepare for Investor Meetings

Angel and venture capital investing is seasonal, and most firms see January as one of the key months for finding new investments. If you are honestly looking to bring on an angel or VC firm, you need to prepare your business before January starts. That means incorporating so you can offer a share of the company for any investments, and getting your pitch ready. How well did you do in 2013? How do you know 2014 will be any better? The idea behind your business will be important, but you need to show solid numbers before anyone invests in your company.

The New Year offers new beginnings, and if you are looking to really grow your start-up, 2014 is a good year to do that. However, that means you need to get your business ready before the clock strikes midnight on December 31st. The month of December should be a month where you take the proper steps to choose a business entity, stay on top of renewals, create an employee agreement, protect your intellectual property, and, if necessary, prepare for January investor meetings. Make it a proactive month, and you’ll be able to hit the ground running come January.

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

Deborah Sweeney