Let me begin by saying I am not an attorney and what follows is not legal advice; but it is stuff you need to know about a home business and how you legally structure it.

Corporation
Starting at the top is a ‘C’ Corporation. These are the big guys. It takes big bucks to get there and for most of us it is absolutely and positively a waste of money, energy, and time. The government has instituted more rules for a ‘C’ Corp. than a shady dealer has aces up his sleeve, and all you have to do is miss one report and the IRS axe comes crashing down to cut you off at the pass. (A little Western lingo there.) The benefit of any type of corporation is that it becomes a ‘person’ in the eyes of the law, and this can, sometimes, insulate you personally from lawsuits, etc. Don’t use that as an excuse for incorporating. Vendors will want you to personally cosign most everything if your corporation is new, and all officers are responsible to the IRS for payroll taxes.

A subset of a ‘C’ Corporation is the ‘S’ Corporation. This was big-brother’s ‘help’ to the small business person, and is still one great way to get a potentially large business off the ground where you are going to have investors. There are almost as many rules for an ‘S’ Corp as a ‘C’, but remember … big-brother only wants to ‘help’ you. Note: you absolutely and positively need an attorney to help you set-up a corporation. You also need a CPA to help with the business structure. As I said, this is an expensive way to go.

Partnership
If you and several friends want to, you can form a Partnership. Partnerships operate under a unique set of rules that in some cases can insulate the junior partners from certain liabilities. Partnerships are divided into limited (where only the senior partner is liable for most debts) to general partnerships where everyone is liable. Partnerships also set more traps for you than a new bride in a mouse-infested apartment. For example, one partner’s signature can bind you to a contract you cannot perform, and should you want to end a partnership or kick-out one partner, you have an instant legal tangle that will keep lawyers in large cars for some time.

Sole Proprietor
“Okay Paul,” you say, “I’ll just be a sole proprietor. That will solve everything, right?” Wrong! When that customer slips on her living room floor after you spent four hours cleaning, waxing, and polishing it, then sues you for ‘overdoing’ the job (I made up that lawsuit category, but I’ll bet you someone has used it!), and your cost is $50,000 for getting out of trouble and you have no expensive insurance to cover things like that … you know what? You lose your money, business, home, car, and maybe your family. A sole proprietor has NO insulation from business activities, NONE!

LLC
So that leaves that new-fangled LLC or a Limited Liability Company. A LLC has the ‘person’ liability insulation of a corporation with the flexibility of having partners (or not) with the ease of set-up and operation of a sole proprietorship. If this is your first or fifteenth try at a business of your own, do it with an LLC. “But Paul, isn’t that kinda’ hokey?” you ask. No, some of the biggest consulting, engineering, construction, legal, and other firms are LLCs, maybe even your accountant or lawyer. Wouldn’t you appreciate knowing that for most business debts your home is not a part of the business? Wouldn’t that be worth a lot to your family? Wouldn’t it be reassuring if your car, your vacation cabin, and your first-born were not in jeopardy of being confiscated and sold because you failed in business?

As I said at the beginning, I am not an attorney and I cannot give legal advice, but I certainly can give you personal experience advice, and that boils down to the following: Write a business plan. Visit the SBA’s SBDC or SCORE office. Hire an attorney to help you. Hire a CPA to advise you. Then DO IT!! Get off the couch and make your life happen!

(NOTE TO EDITORS: PLEASE INCLUDE THE FOLLOWING.)
Paul Tulenko is an International Small Business Success Consultant based in New Mexico, USA. Additional tips and suggestions are available at www.tulenko.com or call (toll-free) 1-866-TULENKO.