Friday, November 16, 2007

Setting up a business

I discovered Business Week has a series of articles on starting up a business.

Room To Grow discusses the different options for a business structure. I cannot describe better the reasons against a sole proprietorship or partnership:

But if you have little chance of being sued because you don't have employees, you have little contact with the public, or your business doesn't need to take on debt, a simple structure may be all that you need.
I would add - if you have no chance of being sued period, then go the simple structure. Since my job in helping a start up is to anticipate problems, I anticipate everyone getting sued.

On the other hand, I have no complaints about the description of a small corporation:
Those benefits do come with more rules. S corps must have a board of directors and annual meetings, and require owners to establish salaries for themselves. And the IRS has stepped up audits of S corps to ensure that owners are not trying to sidestep employment taxes by paying themselves too low a wage. "Set a reasonable salary," says Chris O'Keeffe, a certified public accountant in Richmond, Va. "I cannot stress that enough." An S corp's profits and losses must be allocated in proportion to each shareholder's capital contribution, making it tough to award profits to shareholders who have brought in a lot of business or otherwise been valuable, notes Conrad Davis, a CPA and partner at Ueltzen & Co. in Sacramento, Calif. And some jurisdictions, including six states, don't recognize S corporations for tax purposes, treating them like regular C corporations, taxing them at both the corporate and shareholder level.

At this point, you might want to skip over to Setting Up a One-Person Corporation. Indiana adopted the one man corporation about twenty years ago. Since everyone in a sole owner corporation elects for treatment as a subchapter S corporation, there really exists no reason not to incorporate in Indiana.

I find start up companies electing to be C corporations under the Internal Revenue Code to a rare thing. Incorporating to Reduce Liability sets out the differences, but a good example of a C corporation is Microsoft.

If you think you want to start a company in Indiana, I suggest reading the other articles on this blog under the topic "start ups". There is a link to these articles below. If you then decide you need a lawyer, feel free to contact me.