Structure, Legal and Accounting company matters.
The structure of your company is one of the cornhttps://eduardoguillenmk.com/services/erstones of starting your company. You must choose what form of business you want to establish so you have a clear view of which taxes you must pay. Now, there are several forms of creating a company, but for the specific purpose of the post we are going to focus on Sole Proprietorships and Partnerships:
Here I provide you with general definitions and examples that will help you to define the structure of your own company:
Sole Proprietorships
A sole proprietorship is a person who owns a company by himself (There is just one owner of the company), and it also lacks the corporation tag in it. This sole proprietor can work as an independent contractor (A person who provides goods or services to another entity under terms specified in a contract) or as a small business. Here 10 examples of independent contractors
Pros and Cons:
The ‘Pros’ of being a Sole Proprietorship: It is easy to form, simple to manage and low cost for the owner. You are the man behind the wheel, and as a consequence, the taxes you are going to pay will be only because of your direct work (A self-employment tax + income tax) because under this figure your business income is your income.
The ‘Cons’ of this type of company are that you are bound to your business and as you and your business are one, both in legal and debt responsibilities.
Furthermore, You must have in mind that Sole Proprietorship is one of the most used forms of Company Structure and usually is how the small businesses are born. Moreover, the company can readjust to another structure once It becomes bigger.
General Partnerships:
Partnerships are also an ideal way to begin a company. This company model is the union or two or more individuals who invest (money, property, skill or labor) and at the same time the profits and the losses of the business. Now, in this case, you have two ways create your partnership: general and limited. General allows you to assume and operate the company and also assume liability for the organization. In another hand, the Limited Partnership enables you to play the role of an investor with no control over the business.
Pros and Cons:
Pros: The taxes on partnerships is a ‘pass through’ process. In other words, the partners (not the Partnership) are the ones taxed. This type of company does not pay taxes on income. Why does this happen? Because the idea of a Partnership is to gather more human talent into the enterprise so they can become partners eventually.
Pros: The good part of this company model is that there are no legal requirements to create it. It is as simple as telling another person: Hey do you want to start a company? So, if the other guy agrees, then you have your first step done.
Cons: One big problem with this kind of structure is that all the partners are liable for the debs the company might incur. This even means that if your partner has no money to pay, then you must cover the amount of money required to terminate the debt, regardless of your ownership percentage.
Watch out with this subject! Because if there is no money to pay the debt then the personal assets of each partner could get sold to cover the pending amount. For this to avoid remembering to use liability insurance.
Let’s use an example of how a General Partnership works:
If ‘Mr. A’ decides to invest 20%, ‘Mr. B’ 40% and ‘Mr. C’ another 40% to create a partnership, how will they divide the profits? Ans.: According to the amount invested to start the partnership. There might be cases in which Mr. A wants to receive the same than Mr. B and C, especially if Mr. A is actively working in the partnership, but under the partnership structure, things don’t work that way.
If you are beginning and this is the case, then is better to hire employees who can be paid for a specific task to avoid problems.
Cons: As a partnership involves more than one individual every internal procedure must be defined through agreements. Consider this when you want to decide who or whose are the ones that determine changes in the company.
Company Partnerships: LP, LLP, and LLC
Here I provide you a view of the types of Partnerships: LP, LLP, and LLC
LP:
A Limited Partnership is like a general partnership with the exception that one or some partners will not run the business in any form (these partners must not control the company in any aspect). However, they will provide seed money (money to initiate the project) and collect the profits according to their percentage.
LLP:
An LLP brings the tax advantages of a Partnership and at the same time offers you liability protection. Under this model, if some debt or sue won over the company, then the assets in the business will have to be sold, not the owner’s goods, to pay the debt.
LLC:
LLC offers improved benefits for a Partnership; this means you will have the tax benefit of a Partnership and the liability of a Corporation. In other words, as the corporate law dictates, the company is only liable for the start-up investment done to create it, but not for the most recent value of the company. So, if your company started with an investment of $ 12,000 but now is worth $50,000, you can only be sued for $12,000.
Remember that you must hire the services of a lawyer to create your company. Here you can find some services in these sites:
https://www.priorilegal.com/resources/legal-topics
Payroll
There is an old proverb: “A man needs three people in his life: a doctor, a lawyer, and an accountant”; I would add a couple more professionals on that line, but for this blog this seems fit.
As I mentioned, in the landing page of this website, you must turn your operation into automated and digital activities, why? Because it saves you time.
It is not mandatory you buy software or a complicated resource to do it, use a cloud-based app that provides you with a solution.
Maybe, in the beginning, you won’t need a payroll application but when your company grows and you have more than 3 to 5 clients you will realize you have less time available than you think.
So, it is under these conditions that you will need to reduce paperwork and checklists to pay without any delays.
-Payroll: Intuit: https://payroll.intuit.com/
-Payroll: ADP: https://www.adp.com/
-Payroll: Gusto: https://gusto.com/
Company Account and Licenses. (programs included).
One thing you must have in mind is what kind of software and electronics you will need to use in your company.
First, consider acquiring the equipment and licenses as a group (if you need it of course). Many software providers allow you to have three or more accounts for a discounted price.
Furthermore, you can use services on demand, according to your needs. An example of these are the services provided by Google and Amazon Web Services.
Remember that adaptability is the entrepreneur’s most important skill. In this regard, you must use the proper software (apps) to guarantee responsiveness.
Also, if you are going to buy electronics like cell phones, computers, and tablets check for the available offers, guarantees, and technical service. Do not buy the recent releases like new versions of Windows or amazing graphics cards before checking previous users’ ratings.
Usually, green factory technology comes with a lot of tune-ups to be done, which means you will have to download patches and ask for technical assistance earlier than you think, therefore, you will see your work and tasks delayed.
Finally, remember there are a huge amount of cloud-based applications available in the market for different purposes and businesses like restaurants, mechanics, project management, engineering, graphic design, language learning, web development and much more.
Do your research and check the trials first, then go and buy your subscription. By the way, if you need electronic devices for short periods of time remember you can rent them, this is especially useful for events and ceremonies.
The next post will be the third in the series, and we will talk about how to create Advertising and Marketing for your company. Get Ready!
Here is PART 3 on How to start your own business.