BUSINESS FORMATION WEEK 2 : JAN. 26 MBAX 6860 : Bootstrap Tactics for Entrepreneurs BUSINESS FORMATION January 26, 2007 BOOTSTRAP

OVERVIEW Name selection Business entity selection Office space Bank My take on it… January 26, 2007 BOOTSTRAP

NAME SELECTION You’re going to live with it! ID key descriptors of company Brainstorm list of names Narrow down to top 5 Test top 5 through informal research Trademark/URL registration January 26, 2007 BOOTSTRAP

ENTITY SELECTION Sole Proprietorship Partnership Limited Partnership Corporation C Corp S Corp Limited Liability Company (LLC) January 26, 2007 BOOTSTRAP

SOLE PROPRIETORSHIP Ownership: Individual Liability: Owner personally responsible Continuity: Death dissolves business Transferability: Owner has complete control Capital: Personal funds or loans Control: Proprietor has complete control P&L: Proprietor receives all profits Taxes: P&L treated as personal income January 26, 2007 BOOTSTRAP

SOLE PROPRIETORSHIP Advantages: Disadvantages Simple to create Pass-through to personal tax returns Disadvantages Personal liability to all debts and judgments January 26, 2007 BOOTSTRAP

PARTNERSHIP Ownership: Two or more partners Liability: Partners all liable for business Continuity: Death dissolves business Transferability: Consent of all partners Capital: Personal funds or loans Control: Partners have equal control P&L: Distributed per partnership agreement Taxes: P&L treated as personal income January 26, 2007 BOOTSTRAP

PARTNERSHIP Advantages: Disadvantages Simple to create Pass-through to personal tax returns Disadvantages Partners personally liable January 26, 2007 BOOTSTRAP

CORPORATION Ownership: Stockholders Liability: Limited to amount of investment Continuity: Exists independent of individuals Transferability: Buy/sell stock at will Capital: Sale of stock, bonds, loans Control: Stockholders  Board  Mgmt P&L: Dividends, sale of stock Taxes: Corporation taxed, dividends taxed January 26, 2007 BOOTSTRAP

CORPORATION Advantages: Disadvantages Limited personal liability – corporate veil Unlimited number of stockholders Shelter tax liability between owners and corp.. Disadvantages Cumbersome and expensive Double taxation January 26, 2007 BOOTSTRAP

LLC Ownership: “Members” own some percent Liability: Limited to amount of investment Continuity: Per LLC Articles of Organization Transferability: Per LLC Articles of Org. Capital: Sale of membership %, debt Control: Per LLC Articles of Organization P&L: Per LLC Articles of Organization Taxes: Treated as partnership January 26, 2007 BOOTSTRAP

LLC Advantages Disadvantages Tax choice between partnership or corp. Limited personal liability Disadvantages More costly to form than partnership or sole proprietorship January 26, 2007 BOOTSTRAP

S CORP vs. C CORP These are tax distinctions only C Corporation Unlimited number of stockholders Earnings taxed at corporate rates Dividends taxed at individual rates Double taxation S Corporation Profits (losses) pass through to shareholders Profits taxed as individual income January 26, 2007 BOOTSTRAP

ADVANTAGES OF S CORP Profits (losses) treated as personal income Retain corporate limited liability Not subject to minimum tax (vs. C-Corp) Stock may be voting or non-voting May use cash (vs. accrual) accounting Capital gains (losses) treated as individual income January 26, 2007 BOOTSTRAP

DISADVANTAGES OF S CORP No more than 75 shareholders Shareholders must be humans Shareholders must be US citizens C-Corp tax rate lower for profits < $100,000 May not deduct benefits for stockholders Only one class of stock (no preferred) Net loss limited to stockholders investment January 26, 2007 BOOTSTRAP

OVERVIEW Name selection Business entity selection Office space Bank My take on it… January 26, 2007 BOOTSTRAP

WHERE ‘YA GONNA WORK? Garage Virtual office; ex = Virtual office Incubators Sublease Commercial space January 26, 2007 BOOTSTRAP

BANK References from friends/family Shop around and negotiate Fees, amenities, contacts, online access, merchant account Keep business & personal separate! Need: articles of incorporation, ID, Executive Summary, EIN, and a smile January 26, 2007 BOOTSTRAP

FORMS & MORE FORMS Name Legal formation USPTO.gov ($335 per class) Colorado Secretary of State ($10) URL ($8), godaddy.com Legal formation EIN (form SS4) Articles of incorporation ($50) Working agreements/bylaws January 26, 2007 BOOTSTRAP

FORMS & MORE FORMS Office space Bank Lease Insurance policy Application (need EIN and articles of incorporation) ($20 per month) January 26, 2007 BOOTSTRAP

MY TAKE ON IT… Name Legal formation Office space Be diligent and thorough and absolutely creative Legal formation Depends on business – overall, corporation Office space This grows with the business Sublease! January 26, 2007 BOOTSTRAP

MY TAKE ON IT… Bank Forms Shop around, negotiate and CONTACTS Do it well – make a SOLID foundation January 26, 2007 BOOTSTRAP

OVERVIEW Name selection Business entity selection Office space Bank My take on it… January 26, 2007 BOOTSTRAP

WEEK 3 Bootstrap founders Tasks to complete: Speaker = Dan King Readings ES Company name Infrastructure for business Forms, forms and more forms January 26, 2007 BOOTSTRAP

“To risk nothing is to risk everything” --Unknown January 26, 2007 BOOTSTRAP