Tuesday, December 6, 2011

Setting Up Your Business

First of all, when you’re choosing a new name for your company, be sure to pick a name that actually conveys a message about what you do. It’s a lot easier to market yourself and spread the word if people can understand what the company does through the name.

When it comes to logistically and legally setting up your company, you most likely don’t need an attorney in the beginning. There are plenty of websites such as Legal Zoom and Company Corporation that will help you select the type of business and help you fill out the forms, all for as little as $300 (vs. the thousands of dollars you would pay if you choose to go to a lawyer).  
You will then have to decide between a sole proprietorship and a corporation. Basically for a sole proprietorship, you’re in business immediately and the only thing you have to do differently is when you file your taxes, you will need to fill out the schedule C to disclose your business income and expenses. The reason most people choose not to go with a sole proprietorship is because of the personal liability – if you get sued, people can and will go after everything you own.

If you choose to create a corporation, then you will have a liability shield. There are sub-chapter corporations, which have the tax advantage of sole proprietorship (where losses can be deducted) and there are C corporations (which are larger corporations that have double taxation, so at both the corporate and individual level). There is also something called a limited liability corporation where instead of shareholders, your investors are members of the company (i.e. private equity firms are usually LLC’s). Be sure to understand all the pros and cons of the different types of companies you can set up and take advantage of the websites that can help you fill out all the legal forms to get started.

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