starting new business

The “Tree of Business”

To so many people, business is confusing.  It’s hard to understand, and we fear the unknown.  To the most “daring” among us, we embark on starting and running our own companies (I’m on Startup #2).  When people begin to think about starting this insane ride that is “self-employed”… it may be helpful to think of business as a tree.

First, the most important question:
What kind of business do you want to build?
1. A Tree that grows large and bears regular fruit.  (a for-profit business, but limited in size)
2. A Tree that stays small, and has just enough fruit to feed yourself & family.  (a for-profit business, often called a lifestyle business).
3. A Tree that sprouts many other trees and grows into an orchard or a forest (a huge corporation that someday may IPO – Initial Public Offering).
4. A Tree that gives any excess fruit away to charity (a non-profit)
5. A Tree that you plan to grow quickly, by feeding the tree its own fruit, and then someday sell the tree to someone that is building and orchard or wants to keep the fruit for themself.  (a for-profit business, designed for acquisition).

Knowing what you want out of your business can be extremely helpful in deciding A.) What to do.  and B.) When to feel successful. and C.) How to get your starting soil (investment).

Enjoy your fruit!

Engineers fear Lawyers… A Company’s First Steps are Easy

Fear: HOW DO I START A COMPANY? MANY Engineers freeze up with fear right here. They don’t realize just how easy it is to start a business these days. In Texas, everything can even be done online, and the legal part is really really simple. (NOTE: i’m not a lawyer, so do not consider this legal advice… side-note: see, even I’m afraid of lawyers).

Although this link has more detailed information and all the needed links, I’m going to try to make the process super simple in my own words.

1. Pick S-Corp or C-Corp. The only difference I can tell is that S-Corp does not double-tax dividends, but only allows investment by individuals. Most people should choose C-Corp if they plan to be invested in , and S-Corp if they are not. Don’t fret… you CAN change it later by reincorporating.

2. File appropriate form online (in Texas, that is here): http://www.sos.state.tx.us/corp/sosda/index.shtml (costs $300, so make sure your business name is unique, a simple search is available same site!)
a. Choose some amount of stock that is big enough, but not too big. I chose 10,000,000 shares to start at par of $0.001.
b. Must have at least 1 director (can be same person throughout the document).

3. Get EIN from IRS (this is needed to file taxes, which is the ONLY requirement to continue as a company): http://www.irs.gov

4. File for state tax if appropriate. Texas is here: http://www.cpa.state.tx.us/taxpermit/

5. Enjoy being a company.

Its that easy. Now that you are a company, you might want to issue some shares to yourself. If you do, make sure you file an IRS 83-b form within 30 days. http://www.fairmark.com/execcomp/sec83b.htm

As for giving yourself stock, I recommend it! And I recommend you get this stock in exchange for services rendered (such as business plan preparation, time spent in meetings/formation, etc.). A good founder split is NOT EVEN SPLIT! If there are 2 people, it should be at least 51%/49%. In fact, I HIGHLY recommend that one founder (the one who is leading the effort) get 51%. Reasons: this avoids any future problems related to who is in control/direction of company, this prevents any number of founders from ganging up on the others, and this makes good sense if you want to raise money because that founder will have enough power (hopefully) to stay on the Board of Directors and protect the other founders interest.

A simple MOU can make the above reality. If you actually issue the stock (e.g. with a directors approval or other legal mumbo-jumbo), then you will need a lawyer IMHO.

Frankly, beyond this point of a company, having a decent (fairly priced) legal counsel for the company is a good idea. (Yes, my fear of lawyers kicks in now). But you DONT have to have one to form the company, and you SHOULD wait to get a lawyer until you raise money, or start negotiating contracts/earning revenue/making sales.

Best of luck, and sometimes, fear is not a bad thing… but lawyers don’t cost that much. I have found good legal advice as low as $200-$300/hour… don’t pay more email me/message me first, I’ll give you a few referrals.

–photo credits