1. BUSINESS FORMATION WEEK 2 : JAN. 26
MBAX 6860 : Bootstrap Tactics for Entrepreneurs
BUSINESS FORMATION
January 26, 2007
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2. OVERVIEW Name selection Business entity selection Office space Bank
My take on it…
January 26, 2007
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3. 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
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4. ENTITY SELECTION Sole Proprietorship Partnership Limited Partnership
Corporation
C Corp
S Corp
Limited Liability Company (LLC)
January 26, 2007
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5. 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
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6. SOLE PROPRIETORSHIP Advantages: Disadvantages Simple to create
Pass-through to personal tax returns
Disadvantages
Personal liability to all debts and judgments
January 26, 2007
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7. 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
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8. PARTNERSHIP Advantages: Disadvantages Simple to create
Pass-through to personal tax returns
Disadvantages
Partners personally liable
January 26, 2007
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9. 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
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10. 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
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11. 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
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12. 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
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13. 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
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14. 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
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15. 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
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16. OVERVIEW Name selection Business entity selection Office space Bank
My take on it…
January 26, 2007
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17. WHERE ‘YA GONNA WORK? Garage Virtual office; ex = Virtual office
Incubators
Sublease
Commercial space
January 26, 2007
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18. 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
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19. 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
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20. FORMS & MORE FORMS Office space Bank Lease Insurance policy
Application (need EIN and articles of incorporation) ($20 per month)
January 26, 2007
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21. 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
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22. MY TAKE ON IT… Bank Forms Shop around, negotiate and CONTACTS
Do it well – make a SOLID foundation
January 26, 2007
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23. OVERVIEW Name selection Business entity selection Office space Bank
My take on it…
January 26, 2007
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24. 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
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25. “To risk nothing is to risk everything”
--Unknown
January 26, 2007
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