Nellie Akalp is a serial entrepreneur, small business expert, and CEO of CorpNet.com. She helps small business owners incorporate, form LLCs, file DBAs and more.
We recently asked Nellie’s advice on choosing the right business structure for your business and about the challenges facing small business owners who want to incorporate. Here’s what she had to say:
Can you talk a little bit about your background and interest in small business?
I am a serial entrepreneur in the online legal document filing space. I started my first business in 1997 with $100 and eight years later it was sold to Intuit for $20 million. Instead of retiring early, my husband and I, who are business partners, launched CorpNet.com which helps entrepreneurs incorporate, form LLCs, file DBAs and more across all 50 states. I am a small business owner who loves working every day with other small business owners in making their dreams a reality. I share my small business insight with readers every month at Entrepreneur, Mashable, Huffington Post and more. I want to teach other entrepreneurs that they too can start a successful business.
Can you give us an overview of the different business structures available to business owners? What considerations should they make when choosing the structure that’s best for their business?
Choosing the correct business structure is integral to the success of any business. Here is a bit about some of the post popular structures:
LLC: If you want legal protection, but minimal formality (i.e. no exhaustive meeting minutes or addendum filings), the Limited Liability Company (LLC) is a great option. It’s also the perfect structure for a start-up that will have foreign owners. An LLC’s main benefit, as the name suggests, is to limit the liability of the owners (separating your personal property from company property). An LLC does not file separate taxes; all company profits are passed through to the owners and reported on personal tax returns.
C Corporation: In the majority of cases, a C Corporation is overkill for the small business or freelancer. Operating as a C Corp requires a good deal of legal paperwork and formalities. In addition, a Corp is taxed separately and the company must file its own tax returns. This can lead to the problem of “double taxation” where both the company and the company owners must file and pay taxes. However, a C Corporation should be used for those businesses that plan to reinvest their profits back into the company, seek venture capital funding, or go public.
S Corporation: An S Corporation actually starts off as a C-Corp and then soon after incorporation, the owners submit paperwork to the IRS to be treated as a pass-through entity. This means that like the LLC, an S Corporation does not file its own taxes. An S Corporation is great for a small business owner who can qualify: The IRS places limits both on the number of owners and on who can be an owner in an S Corporation.
If you’re unsure about the type of structure that’s best for your business, my company offers a free business structure wizard that’s a great tool to take advantage of!
What are some of the most common challenges you find facing small business owners who want to incorporate?
The most common challenge small business owners face in wanting to incorporate is that they do not know how to go about it or they aren’t aware of the resources available to them. Many entrepreneurs shy away from the process as they think they need an attorney and a big budget to get the process done. The truth is that there are a ton of free sources (like the CorpNet blog) that can help answer questions about the process.
What are the biggest mistakes or oversights business owners make in the incorporation process?
The most common mistake is that they wait too long to legally register their business and incorporate as they think they are “too small” when first starting out to do this. The truth is that as soon as any amount of money is made, your personal assets are at risk so incorporating should be done as soon as possible.
When should small business owners seek out the help of a company like CorpNet.com?
A small business owner should come to CorpNet when they are launching a business or have an existing business and need to keep it in corporate compliance with state and federal regulatory requirements. At the same time that a business owner needs to find an accountant or marketing support, they should also be thinking of incorporating or forming an LLC to get their legal ducks in a row as early as possible.
What types of advice do you find yourself repeating over and over to clients?
I find myself repeating to clients the importance of protecting your personal assets if you’re a business owner. Forming a corporation or filing an LLC is such a simple thing to do, but the benefits extend long beyond your first year and it’s the best way to protect your personal assets should your business be sued down the line. In addition, I find myself reminding clients to ensure that they are in compliance with all of their business licenses, permits, and business insurance.
What has been your experience with small business insurance? How have you used insurance to protect your businesses?
Yes, I have business insurance. It gives me peace of mind knowing that I am protected and covered in my business from any type of potential liability whether it be with employees, third parties, a fire or an earthquake. I think it’s something that every business owner should have, especially if they will have other employees, tons of hardware or software or will be dealing with third parties in running a business that is considered high risk.
What advice can you offer small business owners on shopping for small business insurance? What should they look for?
First and foremost, you need to align yourself with a good business insurance broker who will take a look at your business and all the potential liabilities your business may face. This broker should ask the right questions and then make recommendations. It’s super important to have trust between you and your broker but also do your own due diligence to know what you are required to carry for insurance as a small business owner. Factors that will play into your decision-making process are whether or not you will have employees on payroll; if there will be independent contractors; whether there will be a ton of foot traffic into your business; and if there’s going to be a ton of high risk with your business or professional services.
What sorts of resources do you think more small business owners should take advantage of?
Small business owners should invest at least an hour a day to reading blogs and scanning Twitter for helpful tips and insights into building their business. There is so much great information online to take advantage of – and it’s all free! My content is published monthly on an array of blogs as well as my personal “Startup Starting Line” blog. Tons of other small business influencers can also be followed. There’s tons of information out there!
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The information in this article was obtained from various sources. This content is offered for educational purposes only and does not represent contractual agreements, nor is it intended to replace manuals or instructions provided by the manufacturer or the advice of a qualified professional. The definitions, terms, and coverage in a given policy may be different than those suggested here and such policy will be governed by the language contained therein. No warranty or appropriateness for a specific purpose is expressed or implied.