Reader-to-reader advice.
Incorporation Affirmation
While we realize that incorporation protects personal assets and allows profits beyond an owner's salary to go untaxed, we're doubtful about any other major benefits. Is there a threshold sales or profit figure, and is there a particular type of business that would warrant the cost and red tape involved in incorporating?
Joan McGinnis
Owner
McGinnis Heating & Air Conditioning
Reedsville, Wis.
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You're probably worried about the additional fiscal duties and paperwork that go with incorporation. Well, banish the thought, says Judith McQuown, author of the definitive guide, Inc. Yourself (HarperCollins, 1993, $12) and owner of a one-person corporation. "You might spend an average of 10 extra hours each month." And don't be discouraged by Wisconsin's corporate tax rate -- which is a full percentage point above the individual rate, says McQuown. "It shouldn't make much of a difference."
Incorporation provides owners and their employees with an assortment of tangible and intangible benefits. Overall, it offers a wider range of tax-advantaged investment tools (pension and profit-sharing plans among them). And the legitimacy conferred by incorporation attracts more discriminating, skilled employees.
If you're like most owners, you'll find that there will be one benefit of incorporation that will tip the scales in its favor. For McQuown, it happened to be the medical benefits. But for countless others, incorporating simply facilitates a company's growing process. If you ever want to raise capital, investors invariably prefer corporations to sole proprietorships or partnerships. And if you choose to expand market share by forming strategic alliances, your corporation can buy stock in other corporations and reap dividends that are largely tax free.
For Larry Harmon, founder of DeMar, a plumbing, heating, and air-conditioning company in Clovis, Calif., the reason for incorporating, which he did back in 1979, was frighteningly obvious: snowballing personal liability. At that time Harmon was wrestling with plenty of what-ifs. "If somebody got hurt in one of our trucks; if a technician didn't see a gas leak; if a faucet wasn't tightened enough. I didn't want to get wiped out." Harmon suspects liability is your main concern, too.
If it is, you should be aware of the courts' efforts to broaden the scope of personal liability. Today it's dangerous for principals of new corporations to continue to think and act like sole owners or partners. There are ways to break those habits and avoid potential fines, says Milton Bordwin, senior partner at the Boston law firm of Rubin & Rudman. One is not signing your own name and title to contracts that require your company's stamp; another is keeping good records of your corporate minutes. And when you file your annual report with the state department of corporations, order a certificate of legal existence. That move can prevent young corporations from having their corporate status dissolved without their say-so.
When you finally decide to incorporate, pick up Ted Nicholas's How to Form Your Own Corporation Without a Lawyer for Under $75 (Dearborn Publishing, 800-554-4379, 1992, $19.95), which includes the necessary forms, a certificate of incorporation, bylaws, and more. Be sure to have an experienced lawyer edit the completed documents before you file them.
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Mentoring Made Easy
Being of minority descent can be a disadvantage when you're seeking mentors for your business development. It's difficult breaking the old-boy network. How can I find a mentor?
William Campbell
Founder
Seasoned Energy Development
Williamsport, Pa.
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If you've done your homework and you're offering a good product or reputable service, people's prejudices shouldn't get in your way, says John Johnson, author of Succeeding Against the Odds (Amistad Press, 1992, $12.95), the inspiring story of his rise from near poverty to the ranks of the Forbes 400 as the publisher of national magazines such as Ebony and Jet . "Make yourself valuable, and show people what you can do to make their lives a little better."
Start relying more on your own solid track record. Henry Nash, CEO of General Scientific, an engineering-service company in Arlington, Va., suggests you turn to past business contacts (maybe a former employer or college professor) for support and constructive advice on an as-needed basis. You'll find those sessions reassuring. And to build your clientele, tell potential clients to call existing ones -- or even your bank -- to confirm your credibility. "No one's going to turn you away if you have the wherewithal to perform," Nash stresses.
You'll also increase your chances of finding a mentor if you join the local chapter of one of the networking groups for small businesses, such as the Executive Committee or the Young Presidents' Organization.
Such groups hold regular meetings that include discussions of specific business concerns. They can help you pinpoint the experienced individuals who are most willing to share their knowledge.
Now identify your strengths and weaknesses and search for people who complement them. Don't expect results overnight. "The best kind of mentor-protégé relationships evolve," says David Thomas, associate professor of organizational behavior at Harvard Business School. Since the people who can open the most doors are usually well-established and secure in their own careers, you have nothing to lose by going straight to the top. Start by contacting directors of trade associations, high-profile industry insiders, respected peers, and customers with clout. "One may have access to resources, and another may have the ability to handle any discrimination issues," says Kathy Kram, author of Mentoring at Work (University Press of America, 800-462-6420, 1988, $20).
