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Can't find what you're looking for? Veteran small-business journalist Martha E. Mangelsdorf guides you to the information you need.

In this edition:

Q. An inc.com user asks: I want to incorporate my husband's small business. I know there are different options, but I don't know what. Can you please help?

A. Martha responds: For a quick introduction to some common forms of business organization, start off with inc.com Law & Taxation mentor Barbara Weltman's recent response to a question about corporate form. Then read an excellent 1997 Inc. magazine story, by Inc. Finance Editor Jill Andresky Fraser, called " Perfect Form." While the Inc. article is a little older than I'd like, it gives you helpful information about many ways to structure a business.

The Inc. story doesn't, however, include something called a professional corporation, so here's an article from FindLaw, " Corporation: Definition, Types, Formation, Maintenance," that discusses professional corporations while also providing a basic overview of corporations and liability. Also, if you want more details about limited liability companies, a comparatively new corporate form that has been increasing in popularity in recent years, you may be interested in " Limited Liability Companies: How Do They Work?" from Nolo.com.

HOT TIP
Want to encourage online sales without breaking the budget at your privately held company? At Fairytale Brownies Inc., a fast-growing entrepreneurial Arizona company that sells brownies via mail order and the Web, online sales have been increasing steadily and now make up 40% or more of revenues, reports Fairytale president and cofounder Eileen Spitalny.

One secret? The company offers a 5% discount for online orders. Spitalny figures that the savings -- the online customer isn't taking a Fairytale customer service operator's time or using Fairytale's 800 number -- make up for the modest discount. "We really do think we save money" with online orders, she observes. Fairytale Brownies, Spitalny says, had sales of $1.5 million in its last fiscal year, and the company projects sales of $2.25 million for the year ending June 30, 2000. --M.E.M.

Those four stories will give you a basic introduction to some common corporate forms, but I think you'll want to know more as you research this important question. One regularly updated source that, over the years, I've found really helpful on issues of corporate structure is the book Tax Savvy for Small Business, Fourth Edition, by attorney Frederick Daily (Nolo.com, 1999, $29.95).

Chapters 6 through 11 of Daily's book deal with, respectively, sole proprietorships, C corporations, S corporations, partnerships, limited liability companies, and personal service corporations/professional corporations (in other words, more than most people ever want to know about corporate forms!).

The book is also, generally, a handy tax reference for business owners and the self-employed; it received a favorable review in Inc. magazine. [Author's Note: In the interests of full disclosure, I should say that inc.com will soon resell some Nolo products, although not traditional books. I do not believe that fact has affected my decision to mention a Nolo product.]

If you decide you want to incorporate, there are a number of ways to do so: For example, you can use a lawyer, read books containing incorporation forms pertaining to your state, or use an incorporation service on the Web. However you proceed, you first want to be well informed about your corporate form options. "Weigh all the factors carefully before deciding," advises Inc.com Law & Taxation mentor Barbara Weltman, an attorney and author of the book J.K Lasser's Tax Deductions for Your Small Business, Fourth Edition. "And consult with a tax professional."


Q. On an inc.com discussion board, a business owner asks: I will be giving an investor a portion of my sole proprietorship. He will own 5% of the company, which is really only applicable if/when I sell it. ... Does anyone know where I can find a resource to help with the wording for a document? It can be pretty informal as the investor is a family member who really doesn't expect anything for his investment.

A. Martha responds: Before you get to the documentation, you may need to examine another issue first. It's that word "sole" in the term "sole proprietorship." Consider this quote from a Nolo.com article on sole proprietorships: "A sole proprietorship is possible only when a business is owned by one person or, in some cases, by a husband andwife."

What's more, in other books about small-business taxation, I've read similar statements about sole proprietorships being solely for one owner, except for the husband-and-wife scenario. So, unless your family member/investor is your spouse, I think you'd be wise to reconsider your options. (If you are interested in learning more about husband-and-wife sole proprietorships, check out this article from Nolo.com: " Tax Realities of Husband-and-Wife Sole Proprietorships.")

Got more suggestions for the inc.com user above? Join the discussion, open to all inc.com members.


An inc.com users asks: A business partner and I are about to embark on the exciting venture of starting our own Internet business. She will be putting up the initial funds, but we'd also like to obtain a loan. The problem isthis: I have bad (very bad) credit accumulated from a very bad divorce several years ago. I know there have been many people out there who have obtained loans (and venture capital)even with bankruptcy in their past. How is it done?

A. Martha responds: I think the best resource inc.com has to offer is a story that Jill Andresky Fraser wrote for Inc. magazine on this very question. It's called " How Do I Find Cash When My Credit Is Bad?" and it starts with a question from a business owner whose credit was hurt during a divorce. Fraser researched the question extensively. Also, you will note that Fraser's article talks about microlending programs as one possible option to explore. Here's a link to a list of some nonprofits that work on microlending and one to an association of microenterprise programs.


Martha E. Mangelsdorf is a senior editorial producer at inc.com. She is also a former senior editor and senior writer at Inc. magazine. Whatever the medium, she loves providing management information to small-business owners.

Can't find what you're looking for? Got an information question for Martha? She scans the inc.com discussion boards for information-related questions. She also addresses selected questions submitted through the general Ask a Question mailbox.

Want more great management ideas and resources for your growing company? Get a free inc.com membership; then try a free trial issue of Inc. magazine. We're dedicated to bringing you the best small-business information anywhere.

Copyright © 2000 inc.com

Last updated: Apr 20, 2000




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