When organizing a new business, one of the most important decisions to be made is choosing the structure of a business.

Factors influencing your decision about your business organization include:
– Legal restrictions
– Liabilities assumed
– Type of business operation
– Earnings distribution
– Capital needs
– Number of employees
– Tax advantages or disadvantages
– Length of business operation

Sole Proprietorship
This is the easiest and least costly way of starting a business. A sole proprietorship can be formed simply by opening the door for business. There are likely to be fees to obtain business name registration [a fictitious name certificate] and other necessary licenses. Attorney's fees for starting the business will be less than the other business forms because less preparation of documents is required and the owner has absolute authority over all business decisions.

Partnership
The two most common types are general and limited partnerships. A general partnership can be formed simply by an oral agreement between two or more persons, but a legal written agreement is highly recommended to help solve any disputes. However, partners are responsible for the other party’s business actions, as well as their own.

Corporation
(Note: A business may incorporate without an attorney, but legal is highly recommended.)
A "C" Corporation has a charter legally recognizing it as a separate entity having its own rights, privileges and liabilities apart from those of the individuals forming the corporation. It is the most complex form of business organization and is comprised of three groups: shareholders, directors and officers. The corporation can own assets, borrow money and perform business functions without directly involving the owner(s) of the corporation. Corporate earnings are subject to "double taxation" -when the corporation is taxed and when passed through as stockholder dividends. Corporations have the advantage of limited liability, but not total protection from lawsuits.

Subchapter S Corporation
A "Sub S" corporation is taxed as a partnership or sole proprietorship, with the profits taxed at the individual rather than the corporate rate. To qualify as a Subchapter "S" corporation, a business must meet certain requirements (see IRS publication 589).

LLC’s and LLP’s
The Limited Liability Company (LLC) is rapidly becoming a very popular business form. An LLC combines selected corporate and partnership characteristics while still maintaining status as a legal entity distinct from its owners. As a separate entity, it can acquire assets, incur liabilities and conduct business. As the name implies, however, it provides limited liability for the owners. LLC owners risk only their investment. Personal assets are not at risk.

The Limited Liability Partnership (LLP) is similar to the LLC with the exception that it is aimed at professional organizations.

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These traps are common to most entrepreneurs - reprinted with the permission of Thomas J. Leonard.

1. Getting wedded to an idea and sticking with it too long.
Don't marry a single idea. Remember, ideas are the currency of entrepreneurs. Play with many ideas and see which ones bring money and success.

2. Trying to be something other than an entrepreneur.
Entrepreneurs are entrepreneurs. You'll give yourself a hernia if you try to act like other people. Your difference is your strength.

3. Believing your own b.s.
Entrepreneurs are genetically wired to be optimistic. Just don't believe everything you say to others.

4. Ignoring your cash position.
The world (a.k.a. customers) doesn't respond to even superior products in the time frame that you think they should. You'll need plenty of cash to sustain yourself in the meantime.

5. Attracting weak staff members.
Not that many great employees will put up with a mercurial or childish/immature entrepreneur. If you're attracting weak people, you'll need to mature as a human being.

6. Confusing possibility with reality.
The successful entrepreneur lives in a world of possibility but spends money in the world of reality.

7. Selling too hard.
If you find yourself selling an idea or product too hard to too many people, perhaps it's time to listen to why they are not buying and learn from that vs. trying to become a better salesperson.

8. Not setting up support structures.
Hire people and services to handle many of your business and personal needs. Most entrepreneurs do better when they are fully supported, even if transparently. Be responsible enough to arrange this.

9. Over delegating.
Most entrepreneurs over delegate tasks and accountabilities to others, a.k.a. dumping. Better to learn the skill of responsibility and completely turning over a task or project than assuming/hoping/needing others to come up to speed quickly enough on their own. Most people cannot.

10. Giving up.
Some of the most successful entrepreneurs failed several times before doing extremely well. So, if you're failing, fail. And, fail fast. And, learn. And, try again with this new wisdom. Do NOT give up. Yet, do not suffer, either.

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It can take months, or even years, to plan a business start-up. There are many steps, but here are eleven important considerations you should have under control before starting.

– Have a passion for your business idea.

– Do a personal and financial assessment to gain an understanding of your risk tolerance, financial means and support for going into business. Develop a written set of personal and family goals.

– Understand the technical and operational aspects of delivering your product or service. If you haven't worked in the type of business you are planning, get a job in it first, if possible.

– Acquire or hire the business management skills you will need.

– Go to small business seminars, talk to business owners, and get information from trade associations, books and magazines.

– Target a specific market. Try to meet customer needs in ways that are unique, valued by the target market, and that will differentiate you from the competition.

– Don't rush. Develop a thoughtful business plan. Interview a few certified public accountants and attorneys for your legal help and financial planning.

– Don't rush decisions on locations.

– Ask other business people or qualified business counselors to review your plan. Talk to more than one banker.

– Focus your efforts. Deliver a limited number of products or services for specific target markets rather than trying to be all things to all people.

– Be sure your business systems are in place, and prove that your concept is profitable, before considering expansion.

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A new business is subject to some or all of these local, state or federal requirements depending on its size, form of organization, and number of employees.

Sales Tax
Almost all businesses selling retail products - and some businesses providing a service - must collect sales tax. Consult the Dept. of Revenue to determine your status.

Seller's Permits
May be required of every individual, partnership, corporation, or other organization making retail sales or rentals of tangible personal property or taxable services in the State. Contact the Dept. of Revenue for information. (NOTE: Sales to customers in other states may be subject to different tax. Check with the Department of Revenue in that state.)

Consumers' Use Tax Permit
The purchase of property or services outside of the state and consumed, used or stored in the State can require the payment of a use tax if sales tax was not paid already. Check with the Dept. of Revenue.

Federal Employer Tax I.D. Number
A federal tax number is not required if a business has no employees and is organized as a proprietorship (a social security number is sufficient). If the business becomes a partnership, LLC, incorporates, or hires an employee, a federal tax number is required. Applications (S 54) are available where IRS forms are distributed, or on the IRS website. All new business owners should obtain a free federal business tax kit that includes information on tax l.D. numbers and regulations covering hiring an employee and other tax issues (call the IRS 800 number).

State Withholding Tax I.D. Number
No tax number is required if there are no employees and the firm is operated as a proprietorship. All income from the business will be reported on supplementary tax forms for the 1040 (for federal) and copied for the state submission for that business as a part of personal income. For complete information, contact the Dept. of Revenue.

Estimated Tax
Generally, sole proprietors, partners, and shareholders of an S Corporation pay tax on income by making quarterly estimated tax payments if they expect to owe taxes of $1,000 or more (including Social Security and Medicare) when they file their annual return. Use Form 1040-ES.

Social Security
Business owners generally have to file quarterly estimated federal income taxes. At that time, Social Security obligations are computed by filling out the quarterly estimated tax form. See IRS Publication 15 'Employers Tax Guide' (available on the IRS website).

Business Name Registration
Some cities / towns have a business name registration ordinance. To learn if a name has already been registered with the State, call the state’s Secretary of State’s Office.

Business Organizations
Any entity other than a proprietorship requires contact with the state’s Secretary of State’s Office. For more information, contact the SBA - SBA pub. MP25 - "Selecting the Legal Structure for Your Firm".

Zoning
A business operating out of any building must be zoned for business use in that geographic area. An office in the home that receives clients or regular shipments probably must be zoned "commercial." Zoning can be checked with your area building inspector's office. Businesses involving food or lodging will generally have health inspection requirements. For information, contact the State Division of Health or the local county Health Department.

Fire Department Inspection
Businesses having regular entry and use of the facilities by the public housing, or use of flammable materials, will generally need a fire department inspection. Consult the local fire department.

Safety and Buildings
Any major remodeling may require plan approval by local municipalities and may also require a building permit.

Requirements for businesses with employees
When hiring any employees, a business must conform to certain requirements. Both federal and state laws regulate employment. The following list briefly summarizes the major areas of law:

- Equal Rights and Opportunity
It is illegal to discriminate against job seekers and current employees based on sex (including pregnancy), age (40 and over), race, color, national origin, ancestry, religion, handicap, sexual orientation, marital status, and, in most cases arrest or conviction record.

- Payroll Taxes
There are two types of payroll taxes: those withheld from employees' pay, and taxes paid by the employer. Withholding from employee pay is required for Social Security (FICA) taxes and for federal and state personal income taxes. Employers need a federal tax I.D. number and employees need to fill out W 4 and WT-4 forms. The federal tax kit includes information on withholding requirements. For state information, call the State’s Dept. of Revenue.

- Unemployment Compensation
If you have an employee to whom you pay more than a certain amount of wages during a calendar quarter, or one that is employed some part of a day in 20 or more calendar weeks, unemployment taxes must be filed. Get information and forms from the State’s Dept. of Revenue.

- Worker's Compensation
A business may also be required to have coverage under the Workers Compensation Act. This coverage is obtained through a private commercial insurer. For information, contact the State’s Dept. of Revenue.

- Labor Standards Laws
Both federal and state laws cover the pay and treatment of employees. Call the U.S. Dept. of Labor, Wage, and Hour Division and/or the Equal Rights Division.

- Independent Contractors
Any worker is an employee unless an employer can prove otherwise. Call the IRS at (800) 829-1040 or visit their Web site for forms and guidelines on employee vs. independent contractor status.

- Employee Benefits – Insurance, Pension and Profit Sharing.
Employers who pay voluntary benefits are subject to regulations aimed at protecting workers from mismanagement of funds and discrimination. Consult an attorney about the Employee Retirement Income Security Act (ERISA) "Section 89" regulations and other applicable laws.

- Immigration Law
Employers must take steps to insure that employees are eligible to work. See the Immigration and Naturalization website at http://www.ins.gov.

- Occupational Safety and Health Administration
There are federal regulations and standards for work place safety. For information on required compliance, contact OSHA.

- Posting of Labor Law Posters
Employers are required to post various posters to inform workers of their rights. Ask each regulating agency about posting.

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