Laying Your Business Foundation, Part 2: Business Formation

In this series we will take about business formation. If you have not read Part One, stop what you are doing and read the article now.

Again, laying your business foundation requires the same intensity as building a bridge, school, museum or any beautiful structure. It takes planning, time and execution, which means doing whatever, needs to be doing to complete the project.

I cannot tell you which business formation is best for your business, only you can make those types of decision. Your attorney, spouse, children or friends cannot shape your reality for you, it’s personal. Before making a decision or selecting which business formations consult with a licensed attorney and accountant to advise you of your legal rights.

Let’s begin…

Sole Proprietorship (SP)

The term “sole proprietorship” means that the business is the same as its owner. The assets and liabilities of the business are one and the same as the owner. There is no mandatory filing requirement on the state level; however, a sole proprietor may register a trade name. Although I do not recommend this entity; however the choice is yours.

Advantages

No other documents needed to open a bank account; purchase materials or supplies needed for the business and you can file taxes under your name. There are other reasons but these are the main reasons for doing so.

Disadvantages

You are responsible for any lawsuits against your company; therefore, this will affect your family well-being. Lenders do not see your business entity as a mom and pop business without any growth. Vendors are less likely to extend credit for major purchases. Contractors, governmental agencies prefer to utilize the services of a company that is not a sole proprietorship.

Incorporated (Inc)

A corporation is a type of legal entity, often formed to conduct business. A corporation is an institution that is granted a charter recognizing it as a separate legal entity having its own privileges, and liabilities distinct from those of its members. The incorporated entity can be very complex; however, you can delegate these complexities to someone who is skilled with incorporation such as an attorney or accountant who are knowledgeable about business laws and taxation.

Advantages

Your business will be accepted as a major contender within the business arenas. You and your businesses are separate entities which mean if your company is ever sued or liable the plaintiff can only charge the company not you personally. Lenders are more apt to lend funds to an established corporation entity compared to other business structures. You are telling the world that you are serious about expanding, growing and or selling your business. There are a number of good advantages to this particular entity and the decision is entirely up to you.

Disadvantages

The number one disadvantage is double taxation. You or your account will have to file taxes in the company name and your name. This drives most potential companies to sway from incorporating under this business entity. Contact your attorney and account to help you navigate through the incorporation process.

Limited Liability Corporation (LLC)

A form of business whose owners enjoy limited liability, but is not a corporation. The State of Wyoming is known as the LLC formation capital since 1976.

Note: Wyoming is not the only state that welcomes LLC formations.

Advantages

LLC members are afforded limited liability and have pass-through taxes similar to a partnership. By forming LLC instead of a corporation, you get all the benefits of forming a corporation but you avoid a few drawbacks that you would run into if you formed a corporation. Specifically, when you form a corporation, you subject yourself to double taxation and excessive paperwork. Both of those annoyances can be avoided if you form LLC. The LLC allows for multiple owners, or members. Additionally, there is a managing member, who also enjoys the benefits of limited liability and is typically the person responsible for managing the business. Members of LLC can be other companies, trusts, organizations or individuals. Members share power, ownership and responsibility over the LLC operations based upon an agreement each member signs upon formation of the company.

Note: If you are the only LLC member or manager you are allowed to use the 1040 or 1040-A filing forms. Check with your accountant or tax provider for advice.

Disadvantages

The entity we were forming will be seeking outside investment and will be offering stock options to employees. Many angel investors and venture capital firms are not lenient about investing in LLC because it’s a new business formation that is not well understood. When raising capital, it helps to keep things simple and avoid anything that makes an investor think twice.

Limited Liability Partnership (LLP)

A partnership where a partner’s liability for the debts of the partnership is limited except in the case of liability for acts of professional negligence or malpractice. In some states LLP may only be formed for purposes of practicing a licensed profession, typically attorneys, accountants and architects. This is often the only form of limited partnership allowed for law firms (as opposed to general partnerships).

Advantages

Both LLC and LLP entities are treated as pass-through entities for federal tax purposes. This means that the owners report company profits and losses on their personal income tax forms. The business itself is not subject to a federal income tax, as a corporation.

Disadvantages

LLP offer the same type of limited liability that of LLC; however, some states require a minimum of one partner of LLP liable for the obligations of the company. There are other business formations; however, these are the most popular.

Until Next Time! Stay tuned to “Laying Your Business Foundation.”

The overall scope for choosing a business formation is to give your business an identity that is separate your personal identity. Doing so will level the placing field within the business community should you choose to grow or expand your business. The topic of discussion for the next article of “Laying Your Business Foundation – Part 3”: Customer Service.

Best Home Based Business Ideas: Free Training, Simple Strategies and Support Communities

Our greatest ideas always seem to come when we do not have a pen to write them down. With the Internet, the pen is no longer needed. All you need is your search engine. When searching for your home-based business ideas you should search for specific criteria. First, you should be able to learn about the business for free. Second, the business should include strategic plans that are simple to follow. Third, your business should have a community of support.

When you search for home based business ideas online, millions of results will be returned. Focus on businesses that offer legitimate, free training. You are not expected to know everything immediately and you should not be expected to pay oodles of cash before you get to try out the business. There are legitimate companies available online who do provide free training and help you get off your feet at the same time. Legitimate companies offer free training because they need you to be successful. They are willing to invest in you and they want to invest in you.

Strategic plans that are simple to follow are monumental assets to the business you choose. Starting a home-based business is scary enough. What you do not need is something so overwhelming you are afraid to try it. Read the reviews covering the business ideas you are considering. You want to go into a business that people like. Positive reviews should help you make your choice. Reviews are written by the customers the business serves and by those actively involved in the business. If the customers and members of the business are happy, chances are you will be happy too.

Community support is another critical component of narrowing your home-based business ideas. You can venture out all alone, or you can find a business with a community. Communities are made of members participating in the business. Members are your best available mentors. They can teach you what they have already learned. Guidance is crucial to your success. Also, members support you. Not only can you partner up and be mentored, they offer encouragement. Encouragement is important because no matter what home based business idea you choose; it will be tough in the beginning. Do not give up! Your fellow members can coach you through your anxiety. Stick with your business and you will see the results you expect.

When you are searching for the best home based business ideas ask yourself what criteria you need. Again, free training so you can earn while you learn. Investigate the strategies so you can find plans that you will be able to follow successfully. Always, find a business that has a community that will support you on your journey to success. With these criteria, you will narrow your search and find the best home based business idea that is right for you.

Better Business Bureau; Is it worth another look

Better Business Bureau Fraudulent Sales Practices

Have any other small businesses had a problem with the BBB and there sales practices? We have for quite some time. Our franchisees, (our company is a mobile car wash franchise company) are required to join the local Chambers of Commerce as part of their franchise when one exists in their exclusive territory. But as soon as they do the BBB calls up and says;

“We have been getting a lot of calls about your service, but we did not know what to tell those customers who inquired about you with The BBB?” Then the pitch goes on…for about $300 plus dollars you will receive….

Our franchisees join the chamber prior to the commencement of their business while their mobile car wash service trucks are being built to get to know the communities they will be serving. Inver ably they will get the call from the BBB from the new member directory from the chamber of commerce before any advertising goes out, so in fact no one had ever called the BBB at all. This has happened to our franchisees in Carson City, NV; Palm Desert, CA; Agoura Hills, CA; Camarillo, CA; Sacramento, CA and Houston, TX. I realize that this is “telemarketing fraud” and I am concerned. I am told that many of the 128 BBBs across the country pay their salespeople either all or part commission. So perhaps this is an individual problem, yet their sales people have done this. I personally have had it happen five times to me as the franchisees signed up at the Chamber of Commerce in various cities and they did not have phones yet, so they called me at Corporate. As a franchisor I am responsible for any verbiage of any sales person given during a sale, shouldn’t the BBB also be liable for these falsehoods?

I contacted the Washington D.C. head office of the BBB and they denied that any such incident has ever occurred and referred me to the fact that they are a 90-year old organization. Maybe, but as it stands today they are breaking the law. This has occurred five times in sales calls to me personally from BBB representatives. I also contacted the Los Angeles BBB and was told that yes their sales people often use Chamber of Commerce lists of new members as well as look up names of anyone who has had a complaint filed against them. I was told of this off the record, yet I am using this information too. In other words they use the list of companies who had customers call in whether it was a valid complaint or not as a sales tool. Interesting since accounting firms cannot also be consultants these days. The hypocrisy of the BBB is a little unnerving and of course unethical if not out right fraudulent in my opinion. I was told at the L.A. office that “MOST COMPANIES” join the BBB. Impossible since there are over 1.6 million businesses throughout the greater LA, Orange County, Riverside, San Fernando Valley area and most could only be over 51%. This is an exaggeration by any stretch. This would mean they would have a minimum of 800,001 business members, when in fact they have less than one tenth that number in all of Southern California. Yet these same BBB offices take complaints about franchising and on many of their web sites tell buyers to be aware of exaggerations;

http://www.bbb.org/library/fran.asp .

This is quite appalling and shows that both franchisors and franchisee attorneys should stand up and take notice; but this is not just a franchise business issue, it is a small business issue. All small business people are subjected to this and maybe harassed. Chambers of Commerce across this country signup their new members with public trust, yet this is being abused by another organization the BBB. I was also told today by this sales person in Los Angeles that 9 out of 10 calls coming into the BBB were consumers looking for references of businesses for service or products. This is also an exaggeration and a falsehood (lie). If you call any BBB the answering machine usually states; “If you would like to make a complaint press 1…” There is no mention of getting a reference and certainly few incoming calls result in new business for its business members. One of the benefits you receive is instant credibility from the consumer, yet the organization issuing the stamp of approval lacks credibility and ethics of it’s own.

Also of grave concern is the fact that even if you join the BBB and appear in the BBB phone book they produce in some markets, if you are disreputable you are still in print for the remainder of the year. And therefore we have the BBB promoting disreputable businesses for as much as 12 months. If someone files a complaint against your company whether real or imaginary (trying to get free stuff) you must settle the said complaint before you can renew, once again extortion.

I feel these sales techniques are fraudulent and disreputable. I am also concerned with the “Boomerang” closing techniques when the BBB sales person gets a negative response to join. “We will not be able to tell the people who call us that you are a reputable company.” Implying that the consumer will assume the opposite, that you are disreputable company. This in itself maybe good for BBB sales, but it is an extortion technique. I have heard this extortion technique myself many times and phrased many different ways all-leading to the same tactic. Asking small companies to fork over $300 plus dollars is unnecessary and they will receive little if any benefit for their BBB membership. Perhaps the plaque displayed may be of value to customers in a store, but the way in which they attempt to sell it is dishonest.

The BBB works closely with the FTC and after contacting the BBB to make a complaint they told me I was wrong, and that I did not know what I was talking about and that the BBB would never do such a thing? Which is also a falsehood since I have experienced it first hand. When I told them that I might have to contact the FTC in this matter, they said go-ahead knowing their strength in alliance with the government

The BBB preys on small businesses of all types as well as franchised businesses for membership using these techniques. We called the FTC as well and they would not take the complaint. Perhaps this is because they work with the BBB in secretly using entrapment techniques to get franchisors to make unsubstantiated earnings claims. The FTC has also worked with the BBB to catch franchisees of various systems in consumer fraud such as automobile repair, advertising claims and telemarketing techniques. So for this reason the FTC will not do anything about this issue.

The BBB is above the law. They often lie to prospective members to make sales, meanwhile attack franchisors using entrapment techniques from the inside while preying upon franchisees to prove self worth in conjunction with other agencies in the media and also use extortion tactics to make money for membership fees. Imagine the money they have extracted from all the franchise systems of this country. Just imagine the number of small businesses who are struggling right now to make payroll as cash flow has lessened due to economic forces beyond their control. Over 10% of all Americans own some type of small business and can be subjected to these terrorizing and extortion sales tactics. Most franchisors have many franchisees that are members of the BBB; this costs franchisees each year and cuts into the profits of the franchised units. We have put this line of text in our franchise agreement:

5.1 You may not join the Better Business Bureau as a business member as part this franchise with us.

I am very serious about this issue, having been lied to by BBB representatives for the last five years and today when I called to see if things had changed. I was hung up on by the BBB in Washington D.C. when I called to discuss this issue. The FTC will not do anything about it for fear of losing a partner. If the FTC will not look into this, why do we need an FTC or a BBB?

I have received several emails from concerned business people, for instance, Bob writes: “That’s really interesting, isn’t it? One government bureaucracy is using what
is “supposed” to be a free-market entity to do the dirty work that they
themselves don’t have the Constitutional backing to do in the first place.
Then, by not holding the BBB accountable for its fraudulent practices, it is
basically saying to them, “you are a brother government agency – one of us -,
free to terrorize whomever you want”. “I always thought that the BBB was basically a private organization that served as a watchdog, with a membership of businesses that could self-police. Apparently, I was wrong.”

This is a nationwide problem not just a few rouge sales people in one part of the country or one of the BBBs 128 locations. In Atlanta Mr. Lee writes: “It’s not just with franchises…. We get calls at our company stores in Atlanta, NYC, Chicago, and Birmingham with the exact same sales pitch “blah blah …we’ve been getting a lot of calls about your company from your prospects, and we don’t know what to tell them because you’re not listed with us..” “It seems like a total scam. I often feel stongarmed by them. Do you mind if I share your email with our attorney?”

Other people are also concerned with these issues, iCop Founder writes: “You certainly don’t need to convince me! I know first hand that everything you’re reported here is true. I have personally received the exact same treatment from the BBB in California. I had to threaten to sue them to get them to stop calling with the threats and harassment. A few years ago, when I had a complaint about one of their big name “sponsors” who ripped me off to the tune of several hundred dollars, the only response from the BBB was, “They said they didn’t so it.” This in spite of the fact that I had sent them undeniable proof! What is wrong with THIS picture?!” “Unfortunately, I have no idea that anything can ever be done about it. They are protected by the government – as you have already found out. I did write a series of articles on it a couple of years ago. Maybe it’s time to rerun them! Apparently, the only thing we can do is educate people and warn them.
Pretty much like the Mafia making you pay for protection under threat, eh? But then when Quest is listed as one of their corporate sponsors, you have to know something’s very wrong! Sorry we can’t be more help but it’s way too big a scam for iCop! When a government supported company like the BBB acts like nothing more than thugs, it’s hard to be surprised at situations like Enron and Worldcom.”

But that is not all the smallest of small business also have been harassed, Greg Spunk writes about this from San Diego and an office now in Phoenix: “We have not joined the BBB in either the Phoenix or San Diego locations for similar reasons. You just verified what I already felt was happening. They are of no value to us and we have not missed them.”

In Pittsburg a small manufacturer writes in to us and says: “The same thing to me. “someone is calling about your business and we aren’t able to tell them anything since you aren’t a member…. It was $465 dollars to join, and they called and called and called. I declined since I didn’t see the point.”

We received this from Albuquerque, NM from the proprietor of a small automotive business who wanted her husbands company to remain anonymous; “It happened here for 6 months, same speil, We have been getting calls for your business etc. Finally I told them that I was not interested and to stop calling or I would call Santa Fe and talk to the DA. Susie”

I received this email from one of our own franchisees;

“The BBB has called us and even after telling them I was too busy to make an appointment (after several calls), they dropped in when I wasn’t home and told Gino I had made an appointment. NOT TRUE. What’s up with them, I told them we were too new to join yet, we had to watch our cash flow. What’s up with them?”

Franchisees coming into the market and/or having been laid off need to watch every penny they spend, if the BBB uses forceful tactics, then they are of detriment to the success of a new franchisee that is on a budget to get their businesses going. Then they show up at a personal residence without an appointment? The sales people are so aggressive and hound small businesses. What happened to privacy? Is the BBB resorting to new tactics after the recent telemarketing law became effective? The BBB was told by our franchise that they were not interested after several calls, so they show up at their house? I am sorry but isn’t this pushing it a little, general harassment? Yet no one will enforce these issues.

If any other Small Business Person, Chamber of Commerce, SBA office, SBDC or franchisor are having this problem, I would sure like to know. Yes we are busy too, but that does not mean we can allow this injustice to continue. This is unacceptable behavior and the BBB should be disgorged of these ill-gotten gains. These monies should be rightfully returned to the businesses and the FTC should not get a dime since they are in cahoots with the BBB and are allowing this to continue for years on end. The FTC and the BBB should stop throwing stones at franchisors and their franchisee team members.