Picking the type of company structure you want to start with is usually what trips a lot of people up. Many first time businesses are setup under the owners name and social security # and can cause them to lose everything later. Every tuesday I will highlight a different company structure and identify their strengths and weaknesses…
Sole Proprietorship - This is the most common business structure. This is pretty much you going down and registering your business with the city. The easiest way to spot a Sole Proprietorship is by name. It will say John Doe dba Big Boy Dough Farms. Now you won’t see the DBA on the signs outside but on their mail and documents it will say it.
Strengths of Sole Proprietorship
- Fastest way to set up a business can be done in a hour or so
- Cheapest way to set up a business as it’s just registering it with the city
- Tax wise you just report your losses on your regular 1040 form
- No need for payroll services as it’s usually a mom and pop operation
Weaknesses of Sole Proprietorship
- Personally Liable – that means if you get sued they will sue you and all your money even if not made from this company can be brought to pay debts.
- If you sell anything that people consume (food, baby toys) this can be a big liability when you get sued because most of your mom and pop places are set up this way.
By far this is the worst structure to set up because you face so many risks. The sole proprietorship is good for people selling things online because it’s straight forward. Depending on how big your hustle this might fit but I recommend… You start off with this one and when you start making money flip up to the other corporate structures.
See you Tuesday with Limited Liability Company
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Great advice! I was stuck because I don’t have any money to register and stuff so this will be perfect for me. Thanks, bruh!
Sidenote: Damn, I have to stop letting myself get blocked so easily. This is a simple solution to my problem. SMH
Okay this is going off course but i’m going to ask since i cant find any viable source online that explains it. Can a corporation and an LLC have their own credit line also since by law they are there own entity? Can i use that credit? Can i make put my cars and or property under the corporation name? I have read that alot of people are doing this. dont know if its legal or not if so can you elaborate.
Thanks Freeman!
Hey Freeman great advice as always..but lets say you want to start a business like a temp agency where other businesses come to you for services. Would u recommend starting as a sole prorprietorship? Isnt this usually the first step for a business like this? if not what would u recommend?
Thanks
@Keish – Just lookup your state and sole proprietorship. I have the next step to set up your company coming out tomorrow and all this week so stay tuned.
@JR – A LLC is usually not recognized by the IRS and I’ll explain that Tuesday the 9th. Now for the corporation (which I will also explain later this month) you can put your car under it and even write off your gas. If you are leasing the car it’s even easier if you own the car the IRS expects you to depreciate the car which is a little bit more cumbersome but can be done by your accountant when you do your taxes. Property if it’s like your house you live in usually isn’t under your corporation but if you are renting and you can say you moved there for business purposes then your rent can be written off to a certain degree. I’ll look more into it so I’ll email you on back channels. I’ll go more in depth later on this month on the power of a corporation.
@Janelle – Temp agencies are usually corporations. I mean the small ones are Sole Props but once you start dealing with more and more contracts companies want you to be a corporation. Since a temp agency is contracting with other places to place competent temps then usually they want a corporation to write checks to. Don’t get discouraged by a corporation I’ll explain it soon enough and you’ll see it’s relatively easy to do and you don’t need to pay a lawyer as their are services that will do it in one day.
I know you’ll get into this later. But I gotta ask now, can you give your view of the benefits of an LLC versus an S-Corp?
A LLC has limited protection and thus the person with the biggest share of the LLC will face the liability. So it’s a modified partnership. The LLC TO ME only benefit is the combination of lets say FreeMan, IBM and 3rd Baptist church under one company head called the LLC. So a LLC to me only benefit is the combination of different corporate structures as otherwise you would have to ratify a persons corporate papers to include people.
S-Corp is a Sole Prop with Corproation protection. As long as you keep your paperwork in order and not commingle any funds you are covered. S-Corp is the best as you don’t have double taxation like a C-corp. So it’s Daniel Freeman Inc as a S-Corp and pretty much operates like a Sole Prop. All of my companies are S-Corps!
Is INC different from s-corp ,c-corp. I Have been told to Inc.
Inc is a S or C corp. When you see Inc or Corp or Co at the end of any company they are a corporation. S and C are different ways of distributing money to other yourself as a shareholder. I’ll explain a corporation later on this month so stay tuned I’ll clear it up.