Start an Online Business: Sole Proprietor, Corporation Or Limited Liability Company?

March 21, 2016 Category :Uncategorized Off

First, let’s identify for whom this article is written. This article is for new entrepreneurs thinking about starting an online business which operates in the United States.

The information contained here is “entry level” for people just starting out in online business. It is not written for people in more sophisticated situations. That being said, let’s get going.

Most new online business owners seem to “jump off the deep end” without giving much thought or doing much planning as to how they will operate their businesses.

That is a poor approach to starting a business. In reality, there are a number of considerations that need to be taken into account at the outset if you want to succeed with your online business and not expose yourself to problems down the line.

Forms of Business Entities

One of the first matters to consider is whether to form an entity to operate your business. Let’s begin at the very basic level and quickly identify your options with respect to operating your business.

For most new businesses, your options are:

Sole proprietorship

Partnership

Corporation (S-corporation or C-corporation)

Limited Liability Company

There are other forms of doing business, but they are usually for more sophisticated enterprises, so we’ll confine our discussion to the ones listed above.

Sole Proprietorship

This is the default option, one that many new entrepreneurs wind up using because they never really think about the issue.

Basically, a sole proprietorship is just you doing your thing. You and your business are not separated legally. That can be quite significant, as we’ll see below.

Advantages of a Sole Proprietorship

Here are the advantages for choosing to do business as a sole proprietor:

Ease of Formation. A sole proprietorship is the simplest business format to form, because there is no formation. It’s just you doing business as you. There is no separate legal entity within which you are operating your business. You may still require business licenses, tax id numbers, etc., but there is no separate entity to be formed and operated.

Low Cost of Formation. Since it is not necessary to form a separate entity to operate as a sole proprietorship, it is less expensive to get started because you don’t have to pay an attorney or company to form a special entity for you and you don’t have to pay any of the fees to you state that are required to form a corporation or LLC.

No Separate Income Tax Returns. Because there is no separate entity involved in the operation of a sole proprietorship, the IRS doesn’t require you to file any separate income tax returns. You will normally just add a schedule (Schedule C) to your good old Form 1040 and file away.

Disadvantages of a Sole Proprietorship

Here are the disadvantages of operating as a sole proprietorship:

Personal Liability. This is the overriding disadvantage of doing business as a sole proprietor. Because there is no separation between you and your business, if you get sued all of your personal assets (house, car, investments, etc.) are at risk. Given the fact that we live in a litigious society where people are suing other people over ridiculous claims, and sadly prevailing sometimes, this is a major concern. If you end up with a judgment against you, you risk losing most of your personal assets.

Less “Professional” Image. Doing business as “John Smith” doesn’t present the professional image in the business world that, for example, “World-Wide Multimedia, LLC” would. This may not be a major concern for you, but it is something to consider, especially if you are trying to get other businesses to recognize you as a joint venturer, affiliate, or member of their CPA network.

Partnerships

We won’t spend much time on this one, because it is relatively rare in the online world. A partnership is an association of two or more people or entities for the purpose of engaging in business.

So, for example, if you and your brother-in-law want to start a business, a partnership could work. It is not something that is normally recommended, though, for reasons explained below.

Advantages of a Partnership

Frankly, in most situations there are none.

Disadvantages of a Partnership

Here are the primary disadvantages of a partnership:

Separate Tax Returns. Partnerships are required to file their own, separate income tax returns, so paperwork is increased without commensurate advantages being offered.

More Complicated to Form. Partnerships normally require paid assistance in the formation process, so costs are increased, again without offsetting advantages in most circumstances.

Increased Liability. This is the big one. A partnership does not protect your personal assets. Even worse, since you have one or more partners involved, you potentially become liable for their activities too, whether or not you actually participated in a given transaction. In addition, your partners can normally obligate the partnership to financial obligations and contractual agreements, sometimes without your knowledge. So, there is definitely increased personal risk to you financially in a partnership.

And, you must be cautious when pursuing business objectives with other people. You can end up in a partnership without meaning to.

Since there are normally no formal organizational requirements for a partnership, a handshake may be all that is required. Just the act of doing business and sharing profits and losses with one or more other people can result in the courts declaring you to be in a general partnership, whether that was your intent or not.

Corporations

A corporation is a separate legal entity that is formed to operate your business. It is that separation between you and your business that can be a major advantage.

You will hear two broad types of corporations discussed: C-corporations and S-corporations. Those distinctions are a topic for another article, but they will be mentioned briefly.

In a nutshell, a corporation is a corporation, the S-corporation/C-corporation distinction is merely an election made by a corporation as to how it wants to be treated for income tax purposes by the IRS.

Advantages of a Corporation

Here are the principal advantages of using a corporation to operate your business:

No Personal Liability. The main advantage has already been hinted at. A corporation is a separate legal entity from you personally. Assuming you set things up properly and adhere to the operational requirements of a corporation, if your incorporated business gets sued only the assets owned by the corporation are potentially exposed to the business’s liabilities. Your personal assets are shielded from liability.

More Professional Image. As discussed above, a corporation presents a more professional image to the world than a sole proprietorship.

One or More Owners. The owners of a corporation are called “stockholders.” The law allows a corporation to have one or more than one stockholder. S-corporations may not have more than 100 stockholders (at the time of this writing). C-corporations may have an unlimited number of stockholders.

Disadvantages of a Corporation

Here are the main disadvantages of a corporation:

More Complicated to Form. Articles of Incorporation and other formation documents must be prepared and filed with the state in which you incorporate. Normally, you will need paid assistance and there will be certain filing fees paid to your state, so there is expense involved. At least with a corporation you are getting the offsetting benefit of limiting your personal liability.

Requires Separate Bookkeeping. Since a corporation is regarded as a separate enterprise from you personally, you will be required to keep separate books and records for business and tax purposes. This may require an accountant or CPA to assist you in setting them up properly.

Separate Income Tax Returns. Generally, a corporation will be required to file its own separate income tax returns. You do not report the corporation’s income and expenses directly on your personal tax return.

Annual Filing Requirements. You state of incorporation will require at least one annual report to be filed for your corporation, and there will be a small fee charged by the state in connection with that filing.

Limited Liability Companies (LLCs)

Limited liability companies are probably the most popular entities these days. They are gradually replacing corporations and the “go-to” business entity.

So as to not over-extend the length of this article, I’ll just list the advantages and disadvantages without more discussion, since they are almost identical with the remarks about corporations. Where there’s a difference, it will be pointed out.

Advantages of an LLC

No Personal Liability (See discussion under corporations)

More Professional Image (see discussion under corporations)

One or More Owners. An LLC’s owners are called “members.” The law allows an LLC to have one or more members.

Disadvantages of an LLC

More Complicated to Form (See discussion under corporations)

Requires Separate Bookkeeping (See discussion under corporations)

Separate Income Tax Returns. A multi-member LLC will be required to file its own income tax returns. For single member LLCs, there are some special opportunities with respect to how they are taxed for income tax purposes. Often, the single member can choose to have the LLC disregarded for income tax purposes. That does not, however, jeopardize your liability protection from lawsuits.

Annual Filing Requirements. (See discussion under corporations)

Summary

I think it’s fair to say that limited liability companies are the most recommended entities, especially for online businesses. As a general proposition, they offer the same protection of your personal wealth from business liabilities that a corporation does, and LLCs are usually considerably more flexible as far as what the law allows in their management structure.

There are a lot of subtle nuances that professionals can debate when considering the pros and cons of the various forms of doing business.

In reality, though, the main concern for most smaller businesses is liability protection for the owner’s personal assets.

Liability protection can be gained by using a corporation (S or C) or an LLC as the entity for operating your business. Liability protection is not gained by operating as a sole proprietor or in a partnership (formal or unintended).

Online Business Directories – Are They of Any Use for Local Businesses?

March 21, 2016 Category :Uncategorized Off

1.) Online business directories are very beneficial for small businesses. You just have to know how they work.

An online business directory is a website submission service that allows your small business’s website to be added to a specific category where it can be searched for by interested visitors. These searchable online directories allow their visitors to search for websites and businesses that they find interesting or that they want to learn more about. Listing your small business on an online directory increases your website’s visibility on the web and helps to create inbound links to your business’ website. Online directories make it easy for people to find what they are looking for. All they have to do is jump online, which means that people could find your business’ website from their home, office or even while traveling.

2.) Want to know how online business directories work?

The concept of online directories is actually a pretty simple one. Online directories are very similar to the printed Yellow Pages in the real world, only these listings are only online. (Actually Yellow Pages.com is now also one of the biggest online directories as well.)

An online business directory is just a listing place for a number of websites. Any type of website could be listed in an online directory. Some online directories are huge and cover every topic that someone could create a website for, while others are very small and specific to a specific niche. This means that online directories will direct you to just about any website that you want to find. All you have to do is perform a search in the online directory for a specific topic, or browse through the various categories until you find the type of websites you are looking for. When you perform a search you will be given a list of all of the websites that relate to your search term. You will be presented with a number of links to these websites and each link will have a short description of what you are likely to find on the website. You can read the descriptions and choose to click on the website that best suits you.

3.) Being listed in an online business directory can give your small business more exposure!

Exposure is important for all business marketing strategies. After all, the more people who are exposed to your business the more people are likely to utilize your business’s services. If online viewers aren’t able to see your website, they likely don’t even know it exists and they probably aren’t going to purchase your products or services. Listing your business’ website in online directories helps your website to gain exposure. Thousands of people use online directories every day to find things they are interested in. These are people who are actively searching for websites that are directly related to your products or services. They are already looking- all you have to do is make it easy for them to find you. Online directories will expose your business to more online visitors, which could increase traffic to your website.

4.) Being listed in an online business directory can also boost your SEO efforts!

Online directories offer several search engine optimization, or SEO, benefits as well. Firstly, these online directories offer you more inbound links. When an online visitor sees your website link in an online directory, they will be able to click on it and be instantly re-directed to your website. This is a great way to increase traffic. It is a great way to improve your status in the eyes of search engine crawlers, too. The more backlinks that a search engine crawler can find, the higher they will rank your website. This is especially true of authoritative online directories. Being linked to a major online directory, such as Google My Business, will give your website more relevancy in the eyes of Google’s search engine crawlers. This will result in a higher page ranking on the SERP. As you know, a higher search engine result page rank you get, the more people are going to click on your website link.

5.) Where’s the best place to start looking at online directories you should be in? Start with your competitors!

You will probably want to consider listing with the top 10 online business directories, as these will be used by a lot of people and will offer higher relevancy and authority in the eyes of search engines. Google My Business is a large general-interest directory that you will want to list your small business with. If your website sells tangible goods, you may also want to consider listing it in comparison shopping websites and product listings directories. Studies show that 42% of consumers will look at a comparison shopping website before they decide to purchase a specific product.

The best way to figure out which specific online directories your small business should be listed in is to start with your competitors. Take a look at your local and niche-specific options and figure out if your competition is already listed. If they are, you need to be listed too. If they are not listed, you want to list your website anyway as a way to beat them to the punch. In some situations it may not make sense for you to have a listing in a specific online directory, even if your competitors are listed in it. Your goal should be to be listed in every relevant and niche-specific directory you can find as well as many of the major directories, but not so many directories that you appear as spam.

6.) Listings are important, but they’re just the beginning. You also want to make sure you have reviews!

Local listings in online business directories are a great way to market your company and get the word out about your business and what you do. However, if you don’t have any positive reviews within those local listings they can do more harm than good. This is because when reviewing all the different businesses within your industry or category, users will always look to the reviews to give them a better idea of the service and quality of product they can expect. And if you don’t have any reviews but your competition’s page is filled with positive reviews, you’re sending customers directly to them instead of to you. You can get more reviews by using surveys, providing incentives, having a tablet with the review site already up to hand over to customers, responding to reviews already up, and by knowing when and where to refer customers.

7.) Remember that once you’re listed you need to track, track, track!

It will probably take some time to see the results of listing your small business’ website in so many online directories, but eventually you will see results. The best way to find the perfect combination of online directory listings for your business is to use some sort of tracking or analytics system. You will want to be able to see how many people clicked on your website links from within the directory and if your website has shown increased traffic since then. You will want to stop wasting your time with online directories that are not producing results and increase the time and effort you spend on online directories that are productive.

In summary, here are 3 critical reasons why your business must take advantage of the top online business directories to help you get more customers.

Maximize Exposure: Every day potential customers are searching for businesses in your area to help solve their problems. And more times then not they’re finding these businesses on online directories.

Social Proof: When prospects find a business online they read reviews to make sure they’re making a good decision. Having customers post positive reviews on your listing will build tremendous credibility and prove to everyone that you’re a reliable business that can be trusted.

Low Cost: Most of the top online business directories are free to use. Making it one of the best marketing values your busine