Setting Up Your Business the Legal Way
By Donesia Muhammad
Copyright© KDM Publishing
Note: This tutorial is not meant to replace any legal advice regarding business start ups, accounting, taxes, or any zoning laws in your state. Please refer to those guidelines as well when setting up your business. This tutorial is meant to give you an idea of what you are facing when starting your business.
Always discuss this with a tax professional and/or a lawyer first before taking anyone's advice.
Okay now you have overlooked the hype and figured out what you really want to do online, now you have to get the legalities out of the way. Purchasing a business license, deciding on the type of business structure you want to have, all come into play with starting your business. There are three common types of structures that we will look at today.
Sole Proprietorships,
Partnerships, and Corporations. I will go into more depth on Corporations
in the next part.
Business Structures
Sole Proprietor: This is the most common type of business owned by new businesses. It is cheaper than the other types of business structures, easy to set up. You just need to file your business name at your local clerk's office.
When selecting a business name, do a search at the local office to make sure someone else is doing business in your area with the name you want to use. Saves you a world of legal hassles down the line. Once that is taken care of, then you also need to make sure you are allowed to have a home based business in your neighborhood. This is done through your local zoning office.
Zoning Laws
Always check with your local zoning office to make sure you are allowed to have a home based business in your home. If your neighborhood isn't zoned for the type of business you want to run at home, and you are caught doing so, you can face hefty fines and possible jail time, so think before you put your name on the line.
Before I received my license, I had to go to my zoning office and pay a zoning fee which was $25.00 ( this varies from state to state so please check with your local county)
So what's the big deal, It's a HOME based business, so why should Zoning laws apply??
Easy. Depending on the type of business, this can greatly affect you.
Neighbors: Excessive noise, unregulated parking. Let's say you want to run your own auto mechanics shop out of your garage. That is fine but also understand the area you live in may not be the environment that you need.
You would need space to park all the cars that need to be repaired. You would also need space for your customers to park and wait to be serviced.
Common sense will tell you that people will end up parking in your neighbor's driveway and this will create an ongoing problem with your neighbor.
Also any chemical waste disposal, if not done and handled according to local and state laws will damage your environment.
What if your business requires people to come to your house. Do you have adequate parking or have you put up signs to let them know where to park?
Have you informed your neighbors that you are starting a business that will require delivery trucks coming to your house or clients parking near you.
This can save you a world of hassles and un necessary arguments with your neighbors. It is not about " I don't want my neighbor to know my business" It's about common courtesy. I didn't say to tell them your business secrets, just let them know IF having your business may inconvenience them at all.
Disadvantages of Sole Proprietors
There are some points about this particular business structure that you should be aware of. As a sole proprietor is responsible for all debts incurred within the business. If your business is involved in a lawsuit, your personal assets may be considered collateral as opposed to other business structures.
Now of course, no one anticipates or wants to get sued, but be aware of this fact.
I am a sole proprietor, and no I don't plan to get sued :) but I am prepared if a situation like that occurs.
I asked Jan Tallent-Dandridge about her business which is a sole proprietorship, about the pro's and cons of being a one woman show.
Jan has been running her own home based businesses for a few years now and has seen plenty come and go. She offers this advice for those looking to have a sole proprietorship.
From Jan Tallent Dandridge from Rim Digest http://rimdigest.com
I find both advantages and disadvantages to being a sole proprietor:
On the plus side, it is really MY own business, I answer to no one but my subscribers and my visitors/customers. I go my own way instead of following a *leader* and most of my decisions are good ones so I love this.
On the down side, I have never worked as hard as I do now. I would never work for a boss so demanding and who expected me to work 7 days a week and up to 12 hours a day. To keep my business successful I find I really have to do that. When I do get overwhelmed, there is never anyone else to turn to for advice or help HERE in my own office, but luckily, another GOOD side is that I have great online friends, LIKE YOU, Donesia, who though in fact are competitors, pitch in and help at the touch of a keyboard, so even the bad can be made into a very positive experience.
My advice to be able to really apply yourself to be a successful small business owner is to make sure you love what you do- give it your best shot and be proud of every step you accomplish. All of the baby steps added together really can take you up the ladder TO success.
Jan Tallent Dandridge
http://www.rimdigest.com
http://www.tallentagency.com
http://www.softwarewarrioress.com
http://www.marketingwarrioress.com
http://www.jantd.com
http://www.jtdhealth.com
Partnerships
Partnerships occur when two or more people ( or businesses) come together to achieve a goal. Partners share in the profits and the work involved, according to the arrangement set.
This enables you to pool your resources together to have your business grow by the thousands.
Partnerships allow you to bringing more capital needed for your business. You can tailor the workload based on the contract you specify.
Individual partners pay the taxes for the business instead of as a whole.
But I think one of the major disadvantages to having a partnership is when that partnership goes sour.
Your partner plucks your last nerve, maybe he/she is a spouse and you are going through a divorce, or you just have clashes over production, money, employees, workloads, etc.
This can complicate things and force your partnership to end.
There may also be increased legal fees with partnerships.
You need to set up a partnership agreement between all partners, so there is no misunderstanding in terms of profit shares, work load, chain of command, etc.
It will save you a world of legal troubles in the long run.
I highly suggest you refer to an attorney regarding your partnership.
Starting a partnership on a verbal or handshake agreement will not help if the partnership dissolves because then all non written agreements will have " selective memory" amongst the other partners and you may be left in the cold.
So get everything in writing first.
Corporations
Normally you have to pay state filling fees within the state your business will reside in. This is usually done in the Secretary of State's office or Corporation commissioner's office. A corporation is separate from it's the people who own the corporation.
So the corporation is entitled to enter into contracts, borrow money, etc..
Many business owners set up their business as corporations for mainly tax and marketing benefits. Many very small businesses may not benefit from incorporating due to its size or until they have employees. But there still are many tax advantages to incorporation as well.
Incorporation can make it seem as if you are more "serious" in your business ventures, in terms of bank loans, and venture capitals, but never rely on this alone in terms of applying for a loan. They still check you out regardless.
Always discuss this information with an accountant and a lawyer before you take the plunge.
Find an Accountant
http://1800accountant.com
http://accountantsworld.com
Incorporate online
http://www.americanbusinesssolutions.com
http://ClickandInc.com
Need a Lawyer to Help You Incorporate
http://attorneypages.com
Corporation Fees
You would have to pay incorporation fees based on the state you live in plus any attorney fees, if applicable, can run into the hundreds. Here is a breakdown of the state filing fees from Click and Inc.com
Click
Here
I asked Thea Swafford about what she went through when she incorporated her business, and she had some good pointers for us all.
From Thea Swafford http://targeted-ad.com
and http://secrets-to-your-successful.com
Thea is also the CEO and President of The Shepherd's Inn, which is an Adult Family Care Home.
"It is a private home that takes in adults who are unable to care for themselves and incorporates them into a family situation as opposed to a facility. We will take no more than three at a time and usually only have two depending on their personalities and needs.
We take them on vacation to our condo with us, include them in everything that
we do and see that feel that they are family.
The benefits of incorporation for us are that we get a tax break on several things that we would have to have anyway.
Understand that these things are 'dedicated' for the business use, but the prime example would be the elder-care write offs.
We have a living room, bedrooms and bathroom that are dedicated to elder-care. Therefore that percentage of square footage of the house is a write off for the mortgage, the electricity to heat and cool that percentage of the house. Even a percentage the grocery bill is deductible to feed the elders.
All of which brings down the cost of our home and daily expenses.
As for attorney fees, we did not go through an attorney our accountant took care of everything. I think it was 500.00 initially and 150.00 year. Again, this is a business expense and is deductible.
Thea Swafford
http://targeted-ad.com
http://secrets-to-your-successful.com
More Resources
http://entrepreneur.com
http://office.com
http://sbaonline.sba.gov
In Part Three, we will learn:
International Businesses, how you fit in perfectly.
More in depth on Corporations, and the different corporate structures your company can take on.
Obtaining a Federal Tax ID, and how easy it is to accomplish.
Helpful Business Resources to Guide You Along the Way.
How your offline skills can help you online.
Still not clear on what to sell online, some resources to make you think before you leap.
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