GRANITE LAW
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GRANITE LAW |
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The Joy of Starting and Owning Your Own To prepare a business plan you will have to ask and answer a number of questions including:
Have Enough Capital — Enough Money The most common reason for failure is not having enough money to start and run your business until you are able to establish yourself. Unless you are independently wealthy, you will have to borrow some money and most likely invest some of your own money. Putting your funds into a business venture helps prove your commitment to potential investors or other sources of financing. Banks, the Small Business Administration (SBA) and private individuals are possible sources of money. Be aware that many banks avoid new business loans as being too risky even when money is not tight. The SBA is usually eager to help new enterprises, but competition is keen for the SBA's limited loan guaranty support. Before applying for financing, you need to carefully prepare a thorough, well-thought-out loan proposal. Write up detailed figures on the capital needed, and be sure to include a salary for yourself and sufficient funds to cover start-up costs. A bank or SBA representative will review your business plan to be sure it's solid. Once you obtain a loan, you'll probably have to provide updated financial statements on a regular basis. As long as your business is profitable and you're making loan payments on time, you'll probably have minimum contact with the bank or SBA. You may consider seeking private investors including friends and relatives but keep in mind, however, that these people may, understandably, expect to have a say in how the business is run. Legal Formations For tax and legal reasons, you'll need to decide what form your business will take. Generally, all businesses fall into one of these broad categories: sole proprietorship, partnership, corporation, S corporation and limited liability corporation. Your choice of business form will affect your exposure to personal liability, how you draw profits and pay taxes and your ability to raise capital. A Sole Proprietorship is the quickest, easiest way to start a business. In a sole proprietorship, profits and losses are simply included on your individual tax returns. On the downside, if someone sues your business, they may be able to sue you personally, and your personal assets are subject to those claims. A Partnership is an association of two or more people working as co-owners of a business with the intent of making a profit. General partners can share unlimited liability, and each is usually responsible for the acts of the other. A Corporation is a legal entity that functions somewhat like an individual, legally and for tax purposes. Liabilities are held by the corporation, minimizing the personal liability for owners. The corporation operates as a business and can be owned wholly or partially based on stock. To set up a corporation, you must file an application for a legal name, pay a corporate franchise fee to the State of New Hampshire and every State in which you wish to do business. You must also appoint a board of directors and corporate officers, and keep minutes of periodic meetings of the board. There's a unique type of corporation, called an S Corporation, that provides the advantages of a corporation but, unlike a corporation, is treated for income tax purposes as a flow through entity. Income is reported individually by the owners or stockholders on their personal income tax returns. Also, the owners may deduct the corporation's losses against other sources of income. If your new business will have fewer than 35 stockholders, you may want to talk with your accountant and attorney about this option. Another alternative is a limited liability company, in which income and income tax are distributed among partners, but generally the partners are not personally liable for debts. This is a relatively new legal form of business and is simpler than a corporation. Down To Business You've got your business pretty well defined, you know what form it's going to take and you know where you're going to locate. Now it's time to get down to the business of running your business. Here are some of the major concerns you'll need to address as you get under way:
If you would like more information on this subject or if you have a specific question, feel free to call Attorney David Jordan at (603) 228-1151 or e-mail him at jordan@granitelaw.com. |
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