Tag Archives | Small companies

What is an Employer Identification Number?

imagesAn employer identification number (EIN), also known as a federal tax identification number (TIN), is used to identify a business entity.  Generally businesses need an EIN.  If you answer yes to any of the following questions, your business must get an EIN:  Do you have any employees?  Do you operate your business as a corporation or partnership?  Do you file an employment, excise or alcohol, tobacco and firearms tax return?  Do you withhold taxes on income, other than wages, paid to a non-resident alien?  Do you have a Keogh plan?  Are you involved with any of the following:  Trusts, except certain grantor-owned revocable trusts, IRAs, Exempt Organization Business Income Tax Returns; estates; real estate mortgage investment conduits; non-profit organizations; farmers’ cooperatives; or plan administrators?

It’s important to remember that a business entity is separate and distinct from its owner(s), and as such needs its own identification.  You can apply for an EIN online, for free, and receive your EIN immediately.  The application is fairly straightforward and takes only minutes to complete.

 

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Consultants and Independent Contractors

As a small business, it is not always possible to hire all of the employees you think you may need. But this can be ok. Hiring independent contractors or consultants instead can be beneficial. You will get their special expertise, you will use them only as needed, you will save on tax contributions and benefits, and you will have flexibiity in the relationship.

It is critical, however, to carefully document your agreement with each independent contractor or consultant. Failure to do so could result in serious tax consequences. Also, if the relationship involves the development of a product, software, book, manual or intellectual property, to name a few, your agreement should set forth the rights you expect to retain in the final product.

Having employees is great, but independent contractors and consultants can often fill a specific need.

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The Corporate Minute Book

corporate-minute-bookIt is important to keep your corporate minute book current.  It should include various important documents, such as the company’s articles of incorporation, bylaws, and minutes or written consents of all meetings and actions of the directors, committees and shareholders.

A current corporate minute book is a useful tool in helping you to comply with corporate formalities, which helps prevent shareholder liability.  In addition, in the event you want to raise money or sell your business, attorneys for the other side will likely want to see your minute book.

Problems to avoid include the following:

  • Minutes that the secretary has not signed
  • Written consents without all necessary signatures
  • No minutes for regularly scheduled shareholder or board meetings
  • Written consents authorizing execution of certain documents as attached, but failing to attach the documents
  • Failure to document calls or notices of meetings
  • Notices or calls of meetings that are legally inadequate
  • Shareholder minutes that do not reflect the number of shares present or how they voted
  • Resolutions showing board approval but not shareholder approval where both are necessary
  • Lack of authorization for issuing shares of stock

Keeping an up-to-date corporate minute book is not unduly burdensome, but well worth the time and effort.

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The Benefits of an Advisory Board

As entrepreneurs, we often keep things close to the vest.  While there are many advisory_boardadvantages to this, there are also disadvantages.  Receiving input from unaffiliated experts is an excellent way to create a competitive advantage and move your business forward.  One way to achieve this objective without feeling too vulnerable is through the use of an advisory board.

An advisory board plays a critical role in helping you move your business to the next levels.  Assembling the right group of advisers allows you to glean from others both their success and horror stories.  Having a group of financial, legal, industry, marketing and operational people to provide you with strategic guidance and feedback helps you make better decisions based on their input and experiences.

The advisory board does not serve merely as a sounding board.  It allows you a trusted audience to discuss your thoughts and ideas regarding your business, and also provides you with insight and perspective of professionals with vast experience from different backgrounds.  Since you will share sensitive information with these people, pick advisers you trust, and whose experience and background you value, and be willing to listen to their ideas and suggestions.  The relationships between you and your advisers, as well as amongst the advisers, will grow and strengthen over time, allowing you additional comfort in sharing the details of your business.  The better your advisers know your business, the better their suggestions will be.

Remember, it is still your business and you are still the decision maker.  Having a group of trusted advisers should enable you to make better decisions faster.

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The Importance of a Business Plan

According to Dun & Bradstreet statistics, poor planning is the number one cause for the failure of a small business.  A business plan is both your company’s resume as well as its growth strategy.  Your business plan, especially for a start-up or early stage company, should outline the plans, strategies and goals for your business.

When writing your business plan, remember that you cannot foresee everything that will happen to your company, so be prepared to revise it as conditions change.  In addition, be realistic with your assumptions, take into consideration the difficulties in growing your business, take your competitors into consideration, and discuss the risks to your business.

Your business plan should be concise and easy to read and comprehend.  It should express the market opportunities for your business, and the strength and depth of your management team.

Keep in mind that youruntitled business plan serves three key functions, namely a planning tool for the growth of your business, a document to convey information to prospective investors, and a base to measure and monitor your company’s performance over time.

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Creating a New Non-Profit

orgThere are a lot of issues to consider when you’re thinking about starting a new non-profit organization to run your community or charitable activities.  One of the first is, are you prepared to run a business?  When you start a new organization, keep in mind there are lots of filing and compliance requirements, both with the IRS and with your state, that will apply no matter how small you are, and that last for the life of the organization.  To avoid trouble, you’ll need to take your new organization seriously, and run it like a small business.

Speaking of small business, also keep in mind that your non-profit status is a tax election.  Successful non-profits are still run like a business.  And they make money, too!  A non-profit organization simply can’t distribute its proceeds to individuals such as shareholders or partners.  All of a non-profit’s proceeds must to be used for its charitable purposes.

The form of your non-profit business organization matters, too.  While the IRS does allow various forms of organizations, such as partnerships or LLC’s, to achieve non-profit status, choosing this type of form will create lots of complications and add lots of time to the process of achieving your tax exempt status with the federal government.  So when you form your organization at the start, choose the basic corporate form in your state.  It will save time and aggravation, and allow you to run and grow your charitable business over time.

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Corporate Basics

Corporate shareholders are the owners of the company, their most important function being to elect the board of directors.  The board has overall responsibility for the company’s business, and elects the company’s officers.  Officers manage the day to day business of the company.

Directors must act in the best interests of the company and its shareholders.  They are fiduciaries, a relationship based on trust and confidence.  The board should not be so large as to be unwieldy, and should preferably be an odd number to avoid deadlocks. The board meets annually, but should meet more frequently to provide advice and guidance to the company.

Certain corporate actions require shareholder approval.  The corporation generally holds an annual shareholder meeting, but can hold special meetings as needed.  In addition, shareholders can approve corporate actions by their unanimous consent without a meeting.

A corporation’s minute book holds important corporate records, and should be kept current.  For instance, the minute book holds the company’s articles of incorporation, bylaws, and minutes and written consents of meetings or other actions of the company’s directors and shareholders.

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Contracts and Small Business

We recognize that many small business owners often operate with various informal agreements.  However, we want to ensure you recognize that it is frequently important to formalize an agreement with a legal contract.  For example, any agreement upon which you rely that can affect the future of your business is important enough that it should be formalized.

Among other things, contracts allow both parties to clearly define their obligations and expectations to and from one another, establish (and potentially limit) their liability, set forth payment terms, and allow each party to understand its responsibilities.

A legally valid contract has four basic components:

  1. A meeting of the minds.  Both parties understand and agree to the essential elements of the arrangement.
  2. Consideration.  Something of value must be exchanged by each of the parties.  This can be in the form of money, goods, or even a promise to do something.
  3. An agreement to enter into the contract.  A written contract signed by both parties satisfies this requirement.  (Oral agreements can also be valid in certain circumstances.)
  4. Legal competence.  Each party must have the capacity to enter into the agreement, meaning each must be of sound mind, and neither can be a minor.

While most contracts address specific items, such as payment terms, timing issues, and the exact subject of the agreement, the  above four components are a critical starting point.  Remember, if it’s important enough to cause you to wonder, it’s probably important enough to formalize the agreement.

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Business Plan Basics

Taking the time to put together a solid business plan that includes your plans, strategies and goals for your business can make the difference between the success or failure of your company.  In fact, according to Dun & Bradstreet statistics, poor planning is the number one cause for failure of small businesses.

Your business plan should give a meaningful description of your business.  Think of it as a tool to help grow your company, and to monitor your company’s performance over time.  In addition, investors will typically want to review your business plan to determine whether to invest in your company.

Don’t worry that you can’t foresee every twist or turn your business will take, and be prepared to modify your business plan as you go along.  Do, however, be realistic in the assumptions you make while drafting your business plan.  Your business plan conveys a lot about both you and your business, so make sure you approve of the message it sends.

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