To Inc. or Not to Inc.
Have you ever thought about running your own business? Maybe you think (or know!) that you can do a better job at running the company you work for than your boss. Maybe you can. Maybe you should.
I am just going to assume that this is a perfect world and all situations are perfectly aligned… which they never are and never will be. I am going to assume that you have a solid business idea, whether it be a product or a service, and I am going to assume that you have done all of your marketing and customer research. You know what your target market needs and you know exactly how you are going to deliver it. The only draw back is – you don’t know what type business entity to set it up under. (Or even worse, you don’t have a clue what that means, but again, I am going to assume that you do because this is my perfect world that I have created for us!)
For the point of me being lazy and wanting to type less, I am going to call whatever it is your wanting to sell “your idea,” whether it is a product or service.
So, let’s get say that you have a masterful plan and you are ready to get your idea out to the masses and have them buy it up leaving you with nothing but tons of money. You could start selling you idea as a sole proprietor, or if you have a partner, a partnership. Now, there maybe a few scenarios where this is a great idea, but I can’t think of any right off the top of my head.
What is one of the biggest problem with being a sole proprietor?
For one, you assume all liabilities for your actions. If you and your idea get sued, all of you assets are up for grabs. If you lose all of the banks money they so graciously gave you, then you are the one who is solely responsible for paying it back. As you can see, this can be a huge, huge risk for yourself and your business. Plus, sole proprietors get audited a lot… it is like that is a red flag to the IRS. (They really like auditing small businesses in general though.)
Okay. What is wrong with a partnership?
Well, you maybe thinking you can bring in a partner and share liability and everything is okay. Wrong. You are responsible, to an unlimited degree, for any of your partners actions. Which means, you can lose everything and you personally have done nothing wrong. Sure, it would be nice to share the initial funds and work, but a partnership may not be the best route to go.
So, what is a good idea for “my idea” then?
It really comes down to your idea and who you are selling too. There are tons of tax breaks and liability benefits associated with all kinds of business entities. The most common entities would be a corporation or a LLC. Now, you can break down those two into several more specific entities such as an partnership LLC or an s-corporation, but I want get into that part right now. I just wanted you to realize that just getting out there and selling you idea may not be the best idea.
I will get into more detailed ideas at a later date, but I just wanted to get your feet wet. Also, realize that I am just throwing in my two cents into the vast random world of the internet. You should NOT take my word for something and/or consider anything I say as legal advice or act on it. I am just discussing possible solution to hypothetical problems. :)
But, if you are really interested in starting your own business, you should talk to a tax specials, accountant, and a lawyer to start with and get their legal advice. They probably know what they are doing where I have just read a lot of stuff that may or may not be true.
If you would like some more information on business entities and setting up your own corporation right now, I would strongly recommend that you check out a book called INC. Yourself by Judith H. McQuown. It is a great book and has been around for years. It really goes into great detail helping you make a better decision as far as setting up a corporation goes.
