1.0 Business Launch Pad Action Plans
1.0 Business Launch Avenues Action Plans
It is imperative that any business owner understand the basics of personal asset protection through the use of limited liability corporate structure. Think about it- would you invest money in a company if you were personally liable for any action or mistake that the company made? Do you think the stock market would be where it is today if people could be sued for wrongdoing of the company they bought stock in? The idea of asset protection is crucial to get started on the right foot in business. But that is not the only benefit-there are also tax benefits to creating a business entity that can’t be realized without creating a corporate structure.
1.1 Types Of Business Entities Below is a chart simplifying the different types of business entities, each will be further explained below. Pros/Cons Personal Limited Liability Less Paperwork Investor Friendly Tax Benefits for Employees Anonymity Of Ownership Easy Tax Preparation Foreign Investors Self Employment Tax Exposure
C Corp
S Corp
LLC
Partnership
Sole Proprietor
x
x
x x
x
xx
x
x x x
x x x
x
x
x x x
Sole Proprietorship: This is your business model should you start doing business without setting anything up. You don’t have limited liability for your business actions. A good business insurance policy will provide all of your protection against claims of personal or property damage.
Pros- no setup required, no special tax filing or record keeping required Cons- without business insurance you have full exposure to litigation from personal or property damage
LLC: This stands for limited liability company. This setup allows for the pass through tax benefits of partnerships with the limited liability of corporations. An LLC owners are its members. You must select either a member managed LLC or a manager managed LLC structure. Most LLC’s are member managed giving the members authority to act on behalf of the LLC. A member managed LLC is the best when the member owners are directly involved in the management of the company. A manager managed LLC is usually only chosen when there are passive members like investors who don’t actively manage the company. The members would hire a management team to oversee the operations of the LLC giving them authority to act on behalf of the LLC. You will need to file articles of organization with the state registered in and many times create an operating agreement for banks and other institutions you may want to do business with.
www.NewGuruModel.com ©Awakened, LLC All Rights Reserved - 2012—Present • Page 1
Phone: 1-519-542-3043
Pros- pass through taxation and limited liability with much less formalities than S corporations. No limit on who or what type on entity can be a member. Cons- legal cases favor S Corps and C Corps which potentially provide greater protection of corporate assets from personal liability
S Corp: S Corporations are a good choice if you plan to run a medium or larger company with multiple employees. It allows you to engage in stock distribution to allow for employee incentives and stock options. There is less flexibility than in a traditional C Corp, but you also don’t get taxed at a corporate and personal level like you would with a C Corp because all profits are taxed at a personal level while retaining the liability advantages of a corporation.
Pros- enhanced liability protection, no double taxation to shareholders, flexible stock options Cons- all shareholders must be US citizens, no more than 75 shareholders, only 1 class of stock can be issued, more paperwork than an LLC
www.NewGuruModel.com ©Awakened, LLC All Rights Reserved - 2012—Present • Page 2
Phone: 1-519-542-3043
1.2 Advanced Business Structures Umbrella or Holding Company- are advanced structures that provides an additional level of protection by creating multiple companies that “hold” or own different assets to protect them from the operating companies liability. You can have the holding or umbrella company own your physical equipment like computers, office furniture, office property etc. and the operating company leases or rents the equipment from the holding company. This way these assets are protected if the operating company gets hits with litigation as they are not susceptible from the extra level of liability. Because the holding company only invests enough capital in the operating company to get it started, that initial investment is the only portion of the operating companies liability that the holding company can be accountable for.
Once launched, the operating company will borrow money from the holding company to expand its capital, and the loans will be secured with primary liens against the operating company's assets. These liens are held by the holding company, making it a priority creditor, in case the operating company should declare bankruptcy. In addition to the financing loans, the operating company will also lease all of its major equipment and real estate from the holding company. Again, if the operating company should go bankrupt, or become liable for judgment, the equipment and real estate will not be lost, because it belongs to the holding company, not the operating company. An umbrella corporation can launch and service many operating companies, as long as each operating company is fully independent. All of these companies will funnel profits back to the holding company, via their leasing of equipment and real estate, through their loan repayments, as well as in the form of profits passed on to the holding company for that portion of the initial capital that was invested in the operating company by the holding company. Hence, as much of the operating company's profits as possible are transferred to the umbrella corporation, where they are protected by its limited exposure to liability.
www.NewGuruModel.com ©Awakened, LLC All Rights Reserved - 2012—Present • Page 3
Phone: 1-519-542-3043
1.3 Business Foundations for Success Own what you do: This is a basic premise for all business owners to understand. If you are not in control of a part of your organization then it is subject to forfeiture or seizure. Would you rather have your company website created on wordpress.com and be subject to their terms or use or would you rather control your own website on your own server and do whatever you want? The answer is obvious once you think about it. Don’t allow anyone else to control your assets. Create and pay for your own hosting account, website, legal documents, professional teams (such as lawyers, accountants, etc) and other critical business operations and management capabilities. Business operations When you start a business you should think about setting it up so that you can sell it. Yes that is the furthest thing on most people's mind when it comes to starting a business but also the smartest. This means creating employee manuals, operating procedures and other critical documents that if you were not actively managing your business day to day that you could hand to a capable person and they could manage the daily operations of getting the work done in your business. List Building: This will be the single biggest asset in any business. Your customer list is a huge advantage over your competition. If you were going to buy a business and saw one had an active customer list of 10,000 people and the other had no list, which would you chose regardless of cost? Your customer list is the single largest asset that your business can have. If you lost every other business asset but still had an active customer list do you think you could get back on your feet and still be successful? Absolutely. Task Delegation This is similar to business operations but involves your personal mindset. Most small business owners are afraid to let anyone else do tasks for them because that person will not do it the same way, or as well as the business owner. While in many cases this is true, do not strangle your business by making yourself the only person who can do critical operations tasks in your business. Remember that you should be working ON your business and not IN your business if you want to grow fast and be competitive in today's overcrowded market. Personnel Management: Hiring/firing/providing worth. This is the next step of task delegation as it is the process in which you allocate tasks and provide a series of steps of how to accomplish tasks that way YOU want them done. There are good employers and bad employers. Which worker do you think is more productive- the happy employee or the disgruntled employee? Why do you think Google has ping pong tables and free food in their employee campus?
www.NewGuruModel.com ©Awakened, LLC All Rights Reserved - 2012—Present • Page 4
Phone: 1-519-542-3043
It is imperative that any business owner understand the basics of personal asset protection through the use of limited liability corporate structure. Think about it- would you invest money in a company if you were personally liable for any action or mistake that the company made? Do you think the stock market would be where it is today if people could be sued for wrongdoing of the company they bought stock in? The idea of asset protection is crucial to get started on the right foot in business. But that is not the only benefit-there are also tax benefits to creating a business entity that can’t be realized without creating a corporate structure.
1.1 Types Of Business Entities Below is a chart simplifying the different types of business entities, each will be further explained below. Pros/Cons Personal Limited Liability Less Paperwork Investor Friendly Tax Benefits for Employees Anonymity Of Ownership Easy Tax Preparation Foreign Investors Self Employment Tax Exposure
C Corp
S Corp
LLC
Partnership
Sole Proprietor
x
x
x x
x
xx
x
x x x
x x x
x
x
x x x
Sole Proprietorship: This is your business model should you start doing business without setting anything up. You don’t have limited liability for your business actions. A good business insurance policy will provide all of your protection against claims of personal or property damage.
Pros- no setup required, no special tax filing or record keeping required Cons- without business insurance you have full exposure to litigation from personal or property damage
LLC: This stands for limited liability company. This setup allows for the pass through tax benefits of partnerships with the limited liability of corporations. An LLC owners are its members. You must select either a member managed LLC or a manager managed LLC structure. Most LLC’s are member managed giving the members authority to act on behalf of the LLC. A member managed LLC is the best when the member owners are directly involved in the management of the company. A manager managed LLC is usually only chosen when there are passive members like investors who don’t actively manage the company. The members would hire a management team to oversee the operations of the LLC giving them authority to act on behalf of the LLC. You will need to file articles of organization with the state registered in and many times create an operating agreement for banks and other institutions you may want to do business with.
www.NewGuruModel.com ©Awakened, LLC All Rights Reserved - 2012—Present • Page 1
Phone: 1-519-542-3043
Pros- pass through taxation and limited liability with much less formalities than S corporations. No limit on who or what type on entity can be a member. Cons- legal cases favor S Corps and C Corps which potentially provide greater protection of corporate assets from personal liability
S Corp: S Corporations are a good choice if you plan to run a medium or larger company with multiple employees. It allows you to engage in stock distribution to allow for employee incentives and stock options. There is less flexibility than in a traditional C Corp, but you also don’t get taxed at a corporate and personal level like you would with a C Corp because all profits are taxed at a personal level while retaining the liability advantages of a corporation.
Pros- enhanced liability protection, no double taxation to shareholders, flexible stock options Cons- all shareholders must be US citizens, no more than 75 shareholders, only 1 class of stock can be issued, more paperwork than an LLC
www.NewGuruModel.com ©Awakened, LLC All Rights Reserved - 2012—Present • Page 2
Phone: 1-519-542-3043
1.2 Advanced Business Structures Umbrella or Holding Company- are advanced structures that provides an additional level of protection by creating multiple companies that “hold” or own different assets to protect them from the operating companies liability. You can have the holding or umbrella company own your physical equipment like computers, office furniture, office property etc. and the operating company leases or rents the equipment from the holding company. This way these assets are protected if the operating company gets hits with litigation as they are not susceptible from the extra level of liability. Because the holding company only invests enough capital in the operating company to get it started, that initial investment is the only portion of the operating companies liability that the holding company can be accountable for.
Once launched, the operating company will borrow money from the holding company to expand its capital, and the loans will be secured with primary liens against the operating company's assets. These liens are held by the holding company, making it a priority creditor, in case the operating company should declare bankruptcy. In addition to the financing loans, the operating company will also lease all of its major equipment and real estate from the holding company. Again, if the operating company should go bankrupt, or become liable for judgment, the equipment and real estate will not be lost, because it belongs to the holding company, not the operating company. An umbrella corporation can launch and service many operating companies, as long as each operating company is fully independent. All of these companies will funnel profits back to the holding company, via their leasing of equipment and real estate, through their loan repayments, as well as in the form of profits passed on to the holding company for that portion of the initial capital that was invested in the operating company by the holding company. Hence, as much of the operating company's profits as possible are transferred to the umbrella corporation, where they are protected by its limited exposure to liability.
www.NewGuruModel.com ©Awakened, LLC All Rights Reserved - 2012—Present • Page 3
Phone: 1-519-542-3043
1.3 Business Foundations for Success Own what you do: This is a basic premise for all business owners to understand. If you are not in control of a part of your organization then it is subject to forfeiture or seizure. Would you rather have your company website created on wordpress.com and be subject to their terms or use or would you rather control your own website on your own server and do whatever you want? The answer is obvious once you think about it. Don’t allow anyone else to control your assets. Create and pay for your own hosting account, website, legal documents, professional teams (such as lawyers, accountants, etc) and other critical business operations and management capabilities. Business operations When you start a business you should think about setting it up so that you can sell it. Yes that is the furthest thing on most people's mind when it comes to starting a business but also the smartest. This means creating employee manuals, operating procedures and other critical documents that if you were not actively managing your business day to day that you could hand to a capable person and they could manage the daily operations of getting the work done in your business. List Building: This will be the single biggest asset in any business. Your customer list is a huge advantage over your competition. If you were going to buy a business and saw one had an active customer list of 10,000 people and the other had no list, which would you chose regardless of cost? Your customer list is the single largest asset that your business can have. If you lost every other business asset but still had an active customer list do you think you could get back on your feet and still be successful? Absolutely. Task Delegation This is similar to business operations but involves your personal mindset. Most small business owners are afraid to let anyone else do tasks for them because that person will not do it the same way, or as well as the business owner. While in many cases this is true, do not strangle your business by making yourself the only person who can do critical operations tasks in your business. Remember that you should be working ON your business and not IN your business if you want to grow fast and be competitive in today's overcrowded market. Personnel Management: Hiring/firing/providing worth. This is the next step of task delegation as it is the process in which you allocate tasks and provide a series of steps of how to accomplish tasks that way YOU want them done. There are good employers and bad employers. Which worker do you think is more productive- the happy employee or the disgruntled employee? Why do you think Google has ping pong tables and free food in their employee campus?
www.NewGuruModel.com ©Awakened, LLC All Rights Reserved - 2012—Present • Page 4
Phone: 1-519-542-3043
