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Creating Corporations
In A Nutshell
By Jim Costa
Business Types - Where To Start?
Go To: Sole Proprietor
Go To: Types Not For You
Go To: For Profit Corporation
Sole Proprietor
This was you by yourself as a teenager cutting grass. Just work and collect money.
No paperwork to file. This is for selling Amway or Joe's Door Bell Repair.
It's drawback is if you break something terribly expensive your family will have to pay for it all eventually. The same is true of Partnerships.
The real protection comes from corporations. If you break something the owner can only get what's in the business, not your home.
Business Types Probably Not For You.
Partnership
Partnerships are great because they are cheap and fast. Many are informal.
My brother and I operated in an informal one. He would know a party in need of expensive used equipment and had knowledge where it might be had at a greatly discounted price. I would prepare the contracts, finance the deal and sell under my name. He would close the deal. The equipment would be drop-shipped to the buyer. We would split the profit. He couldn’t do it alone because he was employed to sell the equipment new and they didn’t deal in used.
But here is the possible problem with a partnership, oral or written. Over time they can sour and get you. Your partner encounters marital problems, leading to drinking and mistakes at work. The partner gets rolled in a topless bar running a tab in the partnership name or company credit card.
You are liable for 100% of it. You end the relationship but fail to do it with paperwork. Two years later you get another $2,000 bill from the topless bar and once again it’s all on you.
LLC
LLCs (Limited Liability Corporation) sounds sexy and puts you up there with the big boys. But for most of us it only spends our money and makes us look stupid to the big boys
who immediately see through our business.
An LLC for most businesses is like buying a train engine and boxcar to move supplies when an old shopping cart with a cracked wheel would do nicely.
An LLC is ideal if you are in a hazardous or questionable business that is highly probable to get you sued. Let’s suppose you raise rattlesnakes and sell them live to chemists for the venom. One improperly sealed or addressed box and you are in court. An LLC is overkill for hanging vinyl siding.
This is how an LLC is supposed to work. It is drawn up by an attorney who has to type the annual bylaws and fill all paperwork in his name. He represents your business in many things you can do yourself. He even charges you rent for a desk drawer that holds your undated resignation from the corporation.
On top of that you must pay a CPA to vouch each year that you paid all your bar tabs and are a good guy. Your CPA and lawyer-man will get most your money. Why? Because their names are listed in the state corporation records instead of yours in the event you are to be sued.
The lawyer will fight half of a forever to not disclose your name to a plaintiff or his Private Investigator. When the court finally forces him to reveal he does. He also shows your resignation letter backdated a week before the cause of the lawsuit came up. It then takes another two years for the plaintiff to find out who took your place in running the business.
Non-Profit Corp.
If you intend to run a business steer clear of this. It is for important clubs like Feed The Birds In the Winter, Foundation. Otherwise, bankers will see through you and be reluctant to deal with you.
Business Type Probably For You.
For-Profit Corporation.
That's all you are left with, the very best.
You can be the only stockholder (Sole Proprietor with legal protection)
or with other stockholders (Partners with legal protection).
You can create it yourself. In Florida the filing cost to create one is about $160.
See: Filing Questions
See: Standard Bylaws. (Don't bother to record them)
Note: Your can file online. Pay the $10 for proof of filing.