Do I Need to Incorporate?

My friend that I mentioned previously in the Webstore Chronicles post, asked if he should form a corporation for his business. I fairly quickly told him no, that he doesn’t need to incorporate. However, the reason for this response might not be so clear to some. Hence this post…

Please remember that this is my personal commentary on whether or not to form a corporation. If you’re getting serious about your business, I recommend you read a few books on the topic and possibly even talk to an attorney. (Just about every “guide to starting a business” will have a section explaining the different business structures.)

Before we move on, let’s review the various business structures:

1. Sole Proprietorship

Basically, anyone that performs a service is automatically considered a sole proprietorship unless they specifically set up another business structure.? Generally, a sole proprietorship consists of a single person or a few employees.? However, there is absolutely no limit on the size of your sole proprietorship.? Technically, even a company the size of Wal-Mart could be a sole proprietorship, but it usually makes sense for larger businesses to use a different business structure.

2. Partnership

When two people start a for-profit business, it’s considered a partnership.? There’s usually, *and should be*, a written agreement covering the distribution of revenue, as well as what would happen if one or both of the partners chose to leave the business. In most states, disputes are handled under the Uniform Partnership Act (UPA).? A partnership is basically a sole proprietorship, but with 2 people.? If you go into business with a partner, no matter how utopian the initial arrangement is, please make sure to write up a detailed partnership agreement.? You’ll appreciate it if things ever turn sour.

3. Corporation

When you form a corporation, you’re actually creating a new legal entity.? This new entity can do just about anything a person can.? It can get credit, make a profit, and get sued.? To form a corporation, you need to complete several incorporation documents specific to the State of incorporation.? When the corporation is created, shares of stock are issued to shareholders.? These shareholders trade something of value, such as money or expertise, for their shares.? These shares are created regardless of whether the corporation is public or private. If your corporation is private, all of the shares could be owned by yourself, or maybe by some close friends and family.? Once your corporation goes public, anyone may buy shares of your company at the going price.

Corporations are also divided into C-Corporations, Subchapter S Corporations, and Limited Liability Corporations (LLC).? Large companies generally form C-Corporations, while smaller companies usually choose an S Corporation or LLC.? There’s less paperwork and regulation on the latter two as long as they follow certain guidelines.

Ok, so why shouldn’t I form a corporation?

There are several myths out there as reasons one should incorporate a business.? The top 2 are tax savings and personal liability.

Ok, now to disspell those incorporation myths:

1. Tax Savings
I’ve read so many times on the Internet that I should form a corporation for the tax benefits.? They usually go something like this: “If you form a corporation, you can write off business expenses, business meals, and even a portion of your mortgage!”

However, you can do all of these as a sole proprietor!? I have owned my own business in one form or another for the past 10 years.? Every year, I was able to deduct business expenses. (Always consult a tax attorney.)? I wrote off equipment, meals, travel expenses, part of my mortgage, part of my utility bills, even some supplies to spruce up my office.? The key is that a sole proprietorship is a business.? As a business you can deduct your business expenses from your income. (Again, I’m not a tax expert.? This is just my experience.)

I did form an LLC a few years ago and the only difference was that I paid a bunch of money to fill out a bunch of forms and follow a bunch of rules.? Then, at tax time, I got a penalty because I didn’t dot all of the i’s and cross all of the t’s.? Thank you, I’ll choose a sole proprietorship every time.

2. Personal Liability
First, I will admit that this is mostly true.? Technically, the corporation is a separate entity, and if it is sued, your personal assets cannot be taken.? If you are running an honest business and someone slips when leaving your house after a meeting, this business structure should stop them from being able to take your house.? I’d say an exception to this entire post would be if you are running a brick and mortar business.? You could absolutely have a slip and fall situation and you’ll be glad to have this layer of protection.? On the other hand, if you’re starting a wholesale business, or other venture that is almost entirely online, you’ll have a tough time convincing me to incorporate.

HOWEVER…This does not mean you are exempt from all responsibility.? If you personally are negligent or dishonest in your business dealings, a judge will come after your personal assets every time.? Many judges are looking to determine why you formed your corporation.? If they find that it was so you could rack up huge debt and/or scam your customers, expect the corporation to be sued, but you can bet you’ll be named as a co-defendant.? Yep, that means YOU are personally responsible for everything.

One more note…

For me, I initially wanted to start a corporation for every business I started.? There’s something about forming a corporation that makes if feel like you’re running a business.? I thought if I had a corporation, it meant I was big-time and it would help the business to be a success.? While it does feel that way, I must stress that it doesn’t matter how much “like a business” your business is.? It’s the goods and services you provide to your customers.? If those are good, then it doesn’t matter if you are a corporation with your own office building, or a sole proprietor working out of your cold, dark, unfinished basement.

So, if you’re running an honest, online business, you really shouldn’t have very much risk of being sued.? So why go through the hassle and expense of forming a corporation?? I’ve done it once, and will never do it again unless I absolutely must.

Hot Deals at Liquidation.com

I know I’m always pimping Liquidation.com, but so far they’re one of my favorite resources for wholesale merchandise.? Free to get started.? No commitments.? It’s almost as easy as Ebay, but with the intent of buying things to make money.

Liquidation.com has a Hot Deals section where they list the auctions that are ending soon.

One product that stood out was the Stix 400 game. While it’s getting mixed reviews as a Wii remote knockoff for your PC, there seems to be a market for them. (ie. anyone not fortunate enough to have a real Wii yet) I’ve seen the Stix 400 version online for $20 to $40. At this moment the bidding is at $175 for 96 of them. (ie. a pretty good price) They also make a Stix 100 and Stix 200, but both of those got very negative reviews from gamers.

Before you buy anything from Liquidation.com, always make sure to check the condition of the product. It will be labeled, New, Returns, Shelf Pulls, or Salvage depending on the source of the merchandise.

Take a look at Liquidation.com’s Hot Deals as soon as you get a chance.

Webstore Chronicles

Over the past few months, a friend of mine has had a lot of questions about different ways to start a business online. More specifically, he wants to start a webstore of some kind.? He’s been looking at quite a few turn-key solutions.? Unfortunately, I don’t have experience with them yet.? Until I have time to do a proper review of these turnkey websites, has anyone else used them?

I have taken a brief look at each of these sites, but I don’t want to skew anyone’s opinion just yet. If you have experience with these websites, or even if you’re just looking at them now, please let us know what you think in the comments. Do you have any other suggestions for turn-key websites? He’s not into programming, so he’s looking for something that’s basically a flip of the switch.

Actually, after going through some of his emails, I’m thinking it would be best for him to use Doba.com for his dropshipping, and pair it with Magento eCommerce as his website platform. I think it might be a little more technical than what he’s looking for, but Doba.com offers a million products, and Magento is free. He could create different web stores based on each product category without any additional cost. That’s my opinion, what do you think?