Starting a business: Business structure (and other legal stuff)




You can just start doing business as sole proprietorship - get some business stationary with business name, your name, address, email, phone, web URL etc (and a web site to go).

 

Why incorporate?

 

People suggest to incorporate a business to:

1. Reduce tax

2. Reduce personal liability of the entrepreneur.

 

It also makes selling the business easy. And businesses often like doing business with other businesses. It is a perception thing.

 

The simple company is an S corporation. Then there is a C corporation, a step up from S corporation, with provisions of common stock (for general share market) and preferred stock (for select people such as founders - This is how it is at Google or Facebook, making it very hard for common class investors to go against the preferred class investors).

 

In the United States, Delaware or Colorado are preferred for ease of incorporation and lower taxes.

 

In the United States, startup founders often incorporate using online services like LegalZoom.com and RocketLawyer.com.

 

Dividing shares: The person with the original idea must start with 50% shares. As for all others, it depends on their cash and sweat investment.

Tech startups allocate 10-20% shares for employees, which come with 'vesting' options, i.e. employees must have worked for a set time before their share options is actually given to them.

 

Permits, licenses or registrations every business needs (depending on type of business:

Permits need for regulated businesses (aviation, agriculture, alcohol, etc.), sales tax license or permit, home-based business permits (if required), city and county business permits or licenses, zoning permit, sellers permit, health department permits (e.g., for restaurants), federal and State tax/employer ID’s

 

Books and records a business needs:

Financial statements (P&L, Balance Sheet, Cash Flow), employee records, board and stockholder minutes and consents, stock and options ledger, tax filings and records (Federal, state & local income, sales and property taxes), government filings (Certificate of Incorporation, annual filings, etc.), invoices & contracts, bank accounts, creditor records

 

Kinds of insurance a business needs (depending on kind of business):

General liability insurance, product liability insurance, professional liability insurance, property insurance (office, factories, warehouses, etc), worker’s compensation insurance, D & O (directors & officers) insurance, health insurance for employees, business interruption insurance, commercial auto insurance, data breach insurance, key man life insurance (for CEO or any other important person)

 

Just do a Google search for each of them.

 

Thank you for reading.
This guide is from The Success Manual, which contains 200+ guides to succeeding in business, career and personal life.  Get the pdf ebook for $12 only.

 


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