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The Legal Structure Of A Small Business

Posted by admin on May 18, 2011 2:00:00 AM

The Legal Structure Of A Small Business
Small businesses have a unique appeal in American life. The ideal of the self-made entrepreneur calls people to start over 600,000 small businesses each year. The Small Business Administration estimates that more than 627,000 businesses were started in 2008. (1) The downside of small business creation is that the majority of business fail the first year. In 2008 alone almost 600,000 firms failed. (2) According to the Commerce Department, only seven out of 10 firms last longer than two years. Only five out of 10 businesses survive five years. (3)

Starting a small business is a complex task and requires internal strength, diligence and persistence. The legal structure of the business plays a large role in determining funding and the level of taxation. The wrong legal structure can kill a business before it even opens it's doors. Properly incorporating the business when setting it up can even potentially save the owner from bankruptcy in the long run.

Sole Proprietorship
The small business owner is the business under this legal set-up. The owner legally represents the company. This simple structure creates minimal tax complications, has much lower start-up costs and makes it easier to handle funds and profits. Unfortunately, since the owner and the company are legally one and the same, creditors can sue the owner for the debts of the business. There is no legal separation between the owner's liability and the business's liability. The owner himself will have to file for bankruptcy if he cannot meet his business obligations.

S Corporation
Under this plan, taxation is similar to a sole proprietorship. There is no corporate tax rate, which makes this structure very attractive. Profits and losses become part of the owner's personal income and are taxed at the owner's applicable rate. An S corporation also allows the owner to write off any losses incurred when starting the business. The biggest downside is the requirement of maintaining regular meetings between shareholders and keeping minutes from these meetings.

C Corporation
This is a more complex version of the S corporation structure. C corporations are the legal structure behind the popular image of a corporation. A board of directors decides company policy and shareholders own different classes of corporate stock. C corporations are taxed at a separate rate and their income is legally separated from the owner's personal income. Owners cannot write off start-up losses. The complexity and responsibility of a C corporation is enough to persuade most small business owners of choosing another legal plan.

Limited Liability Company
A limited liability company (LLC) is probably the most ideal structure for a small business. The owners of an LLC are legally separate from the company. Consequently, the owner is not liable for business debts and creditors cannot sue him to recover them. Profits and losses pass through to the owner's personal income. The operating costs of an LLC are much lower because no meetings, minutes or boards are required. The downside is that an LLC dies when it's owner either dies or goes bankrupt.


(1) http://www.sba.gov/content/how-many-businesses-open-and-close-each-year
(2) http://www.sba.gov/content/how-many-businesses-open-and-close-each-year
(3) http://www.sba.gov/advocacy/7495/8430

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Topics: Small Business

How to See the Sights on a Shoestring

Posted by admin on May 16, 2011 1:41:17 AM

Although some might say travel is an unnecessary expense to begin with, some people just get that travel itch, especially as the weather gets warmer. Travel doesn't have to mean spending money on hotels and tourist traps, though. Follow these tips to reduce the costs of each aspect of your trip so you can see the sights on a shoestring.

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Saving Money In The Office

Posted by admin on May 13, 2011 1:55:00 AM

In order for any type of business to be successful, ways to reduce operational costs should always be sought. Even if a small business has a rather large budget to operate on, the more money it can save means the greater profit levels it will endure, which means the further it will be able to expand. Saving money on office supplies is an excellent way for all businesses to reduce their operational expenses, and best of all, there are several ways to save on office supply costs.

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Topics: Small Business

Transitioning Into a Frugal Life

Posted by admin on May 12, 2011 1:37:39 AM

There is no getting around the fact that living frugally takes effort. Nothing in the world is more difficult at first than changing your habits, even if the change is drastically for the better, and many attempts to better yourself will fall flat long before the benefits of any changes come into play. There are hundreds of small changes that can save a penny here or there, but making sure the changes stick is the real task at hand. Here are a few pointers that can help ease your transition from a lifestyle of habit into one that wont break the bank at the end of the quarter.

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Buying a Car Online Doesn’t Mean What you May Think

Posted by admin on May 11, 2011 1:34:04 AM

Have you ever bought a car online, or heard friends or family mention anything about buying one online? Have you ever dealt with the fleet manager or sales manager at a local dealer even if you were only buying one car? Chances are that if you have tried either of these methods, you did so in efforts to get a better deal. Oddly enough, “buying a car online” is essentially the same thing as negotiating with the fleet manager—you go directly to the gatekeeper who can offer discounted pricing due to their high volume of sales. Even if you’re just buying one car, wouldn’t you still want to get it at wholesale rather than retail (invoice rather than sticker)?

Buying online is not what you may think—it doesn’t involve you sending in money online and doesn’t involve your car getting delivered to your door like other online purchases—though a car can be bought like this if you really want to. Rather, buying online simply means that you utilize one of the many online car buying sites out there to do your research and to use their negotiating power to get a better deal. Once you find a deal you like online, the remaining transaction is carried out in the traditional manner—you pay for, and pick-up your car at the physical dealership.

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Get your Osama Bin Laden T-Shirts!

Posted by admin on May 9, 2011 1:16:52 AM

Have you heard? One of the greatest accomplishments since 9/11 has come to reality. And now everyone is showing their support about the recent events.

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Financing your small business

Posted by admin on May 5, 2011 5:41:00 AM

Small business financing has certainly taken a hit over the last couple of years. With banks, credit unions and other lending institutions limiting access to credit, or raising the cost of credit altogether, small businesses have been left to pick up the pieces. Faced with declining revenues, decreased customer demand and a client base taking longer and longer to pay its invoices, securing business financing has quickly become a going concern for today’s small business owner. However, what options are there for small businesses unable to secure the working capital their business needs? Surprisingly, there are a couple of simple, straightforward and easy-to-use strategies that improve a company’s cash flow position and expand its options on business financing. It involves going outside conventional lending options and adopting a more proactive stance to managing the company’s finances. So, what can small businesses do to resolve the financing issues facing them today?

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Topics: Small Business

Put on Your Best Gloves

Posted by admin on May 1, 2011 1:12:00 AM

Wearing all the hats seems to be the fashion trend of many new business owners who are running a one-person business operation. You are busy marketing to, meeting with, or supplying clients with your goods or services. Sometimes wearing all those hats can be like wearing a concrete block. Your neck is tired from carrying the heavy load of all those hats. There comes a time when you need to take off all of the hats and put on your best gloves.

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Topics: Small Business

How Are Your Internet Ethics?

Posted by admin on Apr 29, 2011 1:09:00 AM

If you're doing business on the Internet, you have a whole new world of ethics to deal with. That means legal issues, copyright concerns, pricing guidelines, and linking to questionable sites. There aren't any clearcut "rules" for dealing with many of these issues, but there are plenty of pitfalls, especially when you start dealing with social media sites such as Facebook and Twitter.

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Topics: Small Business

Brief Guide on the Anatomy of a Successful Business

Posted by admin on Apr 28, 2011 1:06:00 AM

Every day, more and more businesses are realizing the power of the world wide web as a means to find more customers. Setting up a web site takes little time and money, and in some cases, you can be online in a matter of minutes. Despite this, taking your business still requires planning in order to maximize its marketing value. Here are some key components you must incorporate to your small business website.

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Topics: Small Business

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