1. Should I be concerned when conducting market research that someone might steal my idea? Not really. Any market research that you conduct can be kept confidential; so as to limit the probability that someone may steal your idea.
Before you start your business, you must determine whether there is a market for your product or service and also what, if any, improvements are needed:
- Primary research- information that comes directly from your potential customers. You can compile this information yourself or have someone else gather it for you via surveys, focus groups, and other methods.
- Secondary research- gathering statistics, reports, studies, and other data from organizations such as government agencies, trade associations, and your local chamber of commerce.
- Read your trade association’s publications, as well as those aimed at your target customers, to get an idea of current and future trends and buying patterns
- D&B –financial and business services firm that offers a range of reference sources that can help start-ups
However, if you are overly concerned about their idea being stolen, you can require anyone who is assisting you in conducting market research sign a confidentiality agreement, or even apply for a trademark or patent, depending upon the type of idea. It is advisable that you enlist the help of an attorney to guide you through this process.
2) Do I have to incorporate? No. You do not have to incorporate; however, there are many advantages to incorporation.
Some advantages of creating a C Corporation are:
- ts owners, known as stockholders or shareholders, are not personally liable for the debts and liabilities of the corporation.
- Greater tax planning, flexibility, and can shield shareholders from direct tax liability (can use income shifting to take advantage of lower income tax brackets)
Some disadvantages of C Corporations are:
- Income from C Corps is subject to double taxation – (1) net income tax is paid by the corporation, and (2) shareholders pay taxes on income received from the corporation
Some advantages of creating an S Corporation are:
- Shareholders are not personally liable for the debts and liabilities of the corporation.
- There is only one level of taxation because the corporation is treated as a pass through entity (there is no tax on net income)
- Corporate stockholders are not required to pay Social Security and Medicare taxes on profits over and above the stockholders’ shares
- Popular among small business owners
Some disadvantages of S Corporations are:
- You cannot have more than 100 stockholders
- You cannot issue more than one class of shares
- S Corps are subject to more formalities than LLCs
In addition, there are Limited Liability Companies (LLCs). An LLC is a type of business entity that combines the personal liability protection of a corporation with the tax benefits and simplicity of a partnership. LLCs have more flexibility and fewer restrictions than an S Corporation.
Some advantages to creating an LLC include:
- There is no annual meeting requirement (fewer corporate formalities)
- Simpler tax reporting
- LLCs are set up by default as a pass through entities (similar to an S Corp)
- Members enjoy built-in liability protection
Some disadvantages to creating an LLC are:
- They are relatively more expensive to set up and maintain
- Owner managed LLCs are not able to benefit (tax) like some corporations can
- Some investors are more comfortable dealing with a traditional corporation
- Owners are required to pay Social Security and Medicare taxes on profits
3) Do I need liability insurance? If so, what are my options? Yes, especially if you choose not to incorporate or form an LLC. Insurance exists to allow business owners to transfer risk to an insurer in exchange for paying a premium.
As a small business owner, you are exposed to a number of risks. These can vary from property damage, to personal injury claims, or even employee negligence. Without insurance, you and/or your business would need to bear all of the costs arising from these incidents, which could be financially devastating.
- Third party liability insurance – covers virtually all risks
- General commercial liability insurance – has restricted benefits in exchange for lower premiums
4) What are the advantages and disadvantages or running a business out of my home?
- More flexible lifestyle
- Lower start up and operating costs
- No commute
- Flexible work hours
- Satisfaction of being one’s own boss
- Increased tax benefits and write offs
- Personal and family lifestyle patters may be disrupted
- Business and family privacy may be affected
- Lack of fringe benefits
- Stress due to inability to balance family and business needs
- Business activities may cause tension with neighbors
- Discipline is required to establish steady, home-work patterns.
5) I’ve decided to incorporate/form an LLC, what are the nuts and bolts I need to get started? To form a corporation, you must file a document called the "articles of organization" with the Secretary of State. Next, bylaws and organizing resolutions must be adopted. A corporation will also need to apply for a tax identification number (or EIN) with the IRS.
To form an LLC, you must file “articles of incorporation” with the Secretary of State. An operating agreement, outlining the rights of the members and the rules for running the Company must be drafted. An LLC must also apply for a tax identification number (or EIN) with the IRS.
THE TAKE AWAY…
Starting your own business can be very rewarding; however, it requires commitment, a carefully thought out business plan, some type of organizational structure, and a market for the goods and/or services that you are trying to sell. It is important to purchase liability insurance to ensure that you are not held personally responsible for the risks associated with doing business. If you are interested in starting your own business but unsure of how to proceed, seek the advice of counsel at the outset.