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Starting at the beginning, the business structure #1

15 Jun

In our work here at Rhodes Holdings LLC, we work with numerous business organizations looking for funding.  What is striking is how mismatched many businesses are to the business organization structures chosen – therefore, we would like to go over some of the business structures and their uses, risks, and benefits.

Sole Proprietor

Keep it simple when you are starting out, then if business starts to boom, then move to a more complicated structure for your business.  This is the simplest form of business organization (U.S. Small Business Administration definition of sole proprietorship) in that there is nothing that you need to do – just start doing business.
Take payments and deposit them in your own checking account, although we do recommend opening a separate checking account for your business to segregate business expenses. When you file your taxes, Schedule C on the IRS Form 1040 (instructions) is where you list out your revenue and your expenses.  If you want to name your business something other than your name, you can file a ‘Doing Business As’ or more frequently known as a D/B/A.  In some states you must file a D/B/A in each county and in Texas you can file a D/B/A statewide (which can last 20 years).

Actions Required

  • Open a business checking account
  • File a Doing Business As (‘D/B/A‘), for Texas
  • File taxes on schedule C of IRS Form 1040
  • Secure a domain name and create a website
  • (come on, this is 2015 and this is required for just about every business)

Benefits

  • Simple
  • No extra annual expenses for tax preparation or franchise taxes

Risks

  • Personal liability – the individual who owns and operates the sole proprietorship is personally liable for debts and actions of the business since there is no separation between the individual and the business.
  • Raising funds is dependent on the individual owners’ credit and guarantee, which makes it very hard to raise any funds for this business structure
  • Precludes certain activities, licenses and permits that require corporate structures

Conclusion

As the Master of Funding, I personally believe that every business should start off as a sole proprietorship since it allows you to focus on your business instead of the structure of the business.  Write your business plan, make some sales, and run the business for 6 months prior to incorporating.  Once you are ready for the next step in your business’ evolution, do some homework.  Read some of the further reading sites that we provide, contact a lawyer who can walk you through the legal ramifications of each of the corporate business structure (the Master of Funding will provide some further posts associated with business structure), and then take the plunge.  Coming up, information on:
  • Limited Liability Corporations
  • Corporations
  • Partnerships
  • Limited Partnerships (and LLP’s or LLLP’s)
  • Joint Ventures

Further reading

We recommend that you review business structure types to ensure that your business is optimizing its usage of our U.S. federal tax incentives for businesses, Texas state regulation support, and local rules.  A good time to do this is immediately prior to the annual meeting of the business.  Here are some sites that we continually scan:

 


Copyright 2016 by Rhodes Holdings LLC, all rights reserved.

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Posted by on June 15, 2015 in BLOG, Business

 

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