The Three Actions Essential for Starting a Business Part I: Legalizing the Dream
Many individuals dream of starting a business, but they lack the necessary knowledge to make their dreams become a reality.This article will break down the steps to becoming an entrepreneur in three critical parts. Creating an independent hustle involves the following three actions:
1.Legalizing the dream
2.Writing the dream
3.Financing the dream
This first article will only address one of these steps, which is legalizing the dream.
Legalizing the Dream
When you decide to legalize the dream, you have to choose the right business structure and file the proper documents for your business to be a legal entity.There are many types of businesses, but I will only focus on three types.Sole proprietorships, partnerships, and limited-liability companies (LLC) are the three types of business best suited for an independent hustle.The most common business structure is a sole proprietorship.As the name suggests, this type of organization is operated by one person.One of the biggest advantages of a sole proprietorship is complete autonomy.You are the boss, and no one has control over any decision you make.Even your income taxes for the business can be included in your personal income taxes.This alleviates many of the tax issues associated with other business structures.Another advantage of a sole proprietorship is limited government interference.The last thing you want is a significant amount of government interference when you are trying to operate a business. One of the biggest disadvantages of a sole proprietorship is unlimited liability.Unlimited liability means that you are solely responsible for any debt or financial obligations associated with the business.If you default on a loan, or the business gets sued, the bank or suing party can go after any personal assets that belong to you.This means that you could lose your house, car, and other properties associated with your personal assets.Many people are willing to accept unlimited liability, as long as they can have full autonomy over their business.
The next business structure commonly associated with entrepreneurship is a partnership.A partnership is almost identical to a sole proprietorship, but it’s owned and operated by two or more individuals.It is up to the partners whether they will share the same percentage in the business, or each partner will have different levels of responsibility.To ensure that every member of the organization is in full cooperation, a formal agreement should be created to address major issues such as responsibilities, ownership, and termination of ownership.If one of the partners die, their percentage of the business doesn’t necessarily go to the remaining partners.That is why it is so important to have a contract in place before unforeseen events occur.As with a sole proprietorship, the partners have unlimited liability and take on the risk of losing their personal assets.Many people simply like the freedom that sole proprietorships and partnerships allow them to have.These types of business structures are simple to initiate and don’t involve a significant amount of paperwork.
Unlike the first two business structures, an LLC is considered a completely separate entity from the actual owners.I personally think that this is the best business structure for a small business.What is the use of making a six-figure income when someone can take it all away from you with a frivolous lawsuit?An LLC protects you from most liabilities that can occur from owning a business.As far as taxes are concerned, you do have to file separate taxes on behalf of your company.To establish my organization as an LLC, the only thing I did was go down to the Secretary of State’s office for Tennessee and filed the proper documents.I had to pay an initial fee of $300 and a filing fee of $20.These prices differ from state to state, so make sure you do the proper research before you plan to establish an LLC.I also had to pay an annual fee of $300 for having an LLC, and the money was well worth it.If my company went into debt, the debtors would have to go after the LLC and not my personal assets.An annual fee of $300 is a small price to pay for a peace of mind.
Once you have decided on what type of business structure you want for your organization, then your next step should be filing the proper documents.For most businesses, you will need to register your business name, obtain a business license, and apply for an employer identification number (EIN).Before you can use the name you have created for your business, you want to make sure it is not already in existence.To do this, you should go to the secretary of state’s office for your particular state, and the office can check the availability of your business name.This will ensure that you don’t end up in a legal battle over the name of your company.You can also register trademarks in the same location.Registering your business name also prevents others from using your name.
A business license gives you the right to sell your goods or services in the state where you are operating.To obtain a business license, you must go to your county clerk’s office or the tax division for your state.The license also requires you to track and pay sales taxes for your state.If you are caught operating a business without a business license, it could result in hefty fines or the loss of your business.Even though you may not have a physical location for your business because you only sell products/services online, you still want to acquire a business license from the state where you reside.If you conduct business outside of the state where you operate, you may still be required to obtain a business license from each state where you conduct business.An EIN is the same as a federal tax identification number, and it is required for the purpose of filing federal income taxes for your business.You can request this number from the IRS Website at http://www.irs.gov.Having an EIN also gives you access to companies that only deal with legitimate businesses.For example, my friend Judah buys several goods from wholesalers and sells the goods at retail prices.Without an EIN, many of these companies would not allow him to purchase items in bulk.Many wholesalers do not sell goods to the general public.Having your organization properly registered and documented will open up many doors that would otherwise be closed to you.
A registered business name, business license, and EIN are essential for you to have a legitimate business; but there may be additional industry-related requirements for you to operate. Do your research to make sure you are in compliance with any rules and regulations that govern your industry.Independent hustlers can lose a significant amount of time and money if their businesses are not operating legitimately.A good online resource for finding industry requirements for operating a particular business is http://www.business.gov.The information available on the Website is from several government sources, and it will save you a significant amount of time compared to searching for the same information on your own.If you plan on hiring employees, you will have to file additional documents and be in compliance with the U.S. Department of Labor (DOL).Visit the DOL office for your state to obtain the information related to having employees.Many states have their own DOL Website you can access for information as well.
In conclusion, I am a strong believer that actions speak louder than words.Instead of giving you a gargantuan amount of confusing information, I have made it simple to follow the process of becoming an independent hustler.Do yourself a favor: check the references that I mentioned in this article.Go to www.business.gov and see does it have information on the type of business you want to start.I encourage you to become a risk taker and reap the rewards of your courage.Once you have decided how you are going to legalize your organization, then it will be time to put your knowledge of entrepreneurship into action!
Edgar Alan Cole, M.B.A.
Resources:
Internal Revenue Service. (2011). Retrieved September 15 2011, from http://www.irs.gov.
Business. (2011). The official business link to the U.S. Government. Retrieved September 15, 2011, from http://www.business.gov.
