Hello everyone who still follows this page (All four of you)! I know updates have been a little sparse, we’ve been booking cons left right and center but it came to my attention that I need to address a very important issue. It came up when I was going through my business paperwork and fund a form that my partner and I forgot to have signed in front of a notary.
Paperwork, the bane of my existence, it takes up a staggering amount of my time.
I have paperwork for all my receipts, I have paperwork for inventory, I have paperwork for how much I’ve made or lost at cons and how much my expenses were. I have paperwork for my paperwork. Its frankly ridiculous. But it’s not the most important paperwork. Not by far, no the most important paperwork got filled out when this business was just a bitty baby. We filed a partnership agreement, got a Federal Tax ID Number; This one is super important kids! Go to THIS WEBSITE and get one, while you’re at it get the tax ID number for your state too! DO IT or Uncle Sam will come down on you with the wrath of an angry Titan who can and will put you in jail and take all your stuff. And wrote up a Dissolution Agreement.
I’m going to start off with the first one. There are a number of ways you can protect yourself and your baby business. We went with a Partnership which defies out roles within the business and who does what, when and for how many cookies.
It also defines who pays for what, who gets paid and when and explains each individuals tax responsibilities. This is all crucial stuff even if you’re going into this with a friend. Maybe especially if you’re going into business with a friend. Like I said in the first Post, owning your own business is like being in a relationship and when it fails it takes half your stuff and most of your friends too. A partnership agreement helps protect both of you and in a lot of cases having defined roles can save your friendship too. Now there are other types of agreements that can protect you and your business as well:
A sole proprietorship is a one-person business that is not registered with the state like a limited liability company (LLC) or corporation. You don’t have to do anything special or file any papers to set up a sole proprietorship — you create one just by going into business for yourself.
Legally, a sole proprietorship is inseparable from its owner — the business and the owner are one and the same. This means the owner of the business reports business income and losses on his or her personal tax return and is personally liable for any business-related obligations, such as debts or court judgments.
Similarly, a partnership is simply a business owned by two or more people that hasn’t filed papers to become a corporation or a limited liability company (LLC). You don’t have to file any paperwork to form a partnership — the arrangement begins as soon as you start a business with another person. As in a sole proprietorship, the partnership’s owners pay taxes on their shares of the business income on their personal tax returns and they are each personally liable for the entire amount of any business debts and claims.
Sole proprietorships and partnerships make sense in a business where personal liability isn’t a big worry — for example, a small service business in which you are unlikely to be sued and for which you won’t be borrowing much money for inventory or other costs. To learn more about starting and running a sole proprietorship or partnership, read Nolo’s articles on each topic.
Limited partnerships are costly and complicated to set up and run, and are not recommended for the average small business owner. Limited partnerships are usually created by one person or company (the “general partner”), who will solicit investments from others (the “limited partners”).
The general partner controls the limited partnership’s day-to-day operations and is personally liable for business debts (unless the general partner is a corporation or an LLC). Limited partners have minimal control over daily business decisions or operations and, in return, they are not personally liable for business debts or claims. Consult a limited partnership expert if you’re interested in creating this type of business.
limited liability company (LLC) & corporation (for-profit):
Forming and operating an LLC or a corporation is a bit more complicated and costly, but well worth the trouble for some small businesses. The main benefit of an LLC or a corporation is that these structures limit the owners’ personal liability for business debts and court judgments against the business.
What sets the corporation apart from all other types of businesses is that a corporation is an independent legal and tax entity, separate from the people who own, control and manage it. Because of this separate status, the owners of a corporation don’t use their personal tax returns to pay tax on corporate profits — the corporation itself pays these taxes. Owners pay personal income tax only on money they draw from the corporation in the form of salaries, bonuses, and the like.
Like corporations, LLCs provide limited personal liability for business debts and claims. But when it comes to taxes, LLCs are more like partnerships: the owners of an LLC pay taxes on their shares of the business income on their personal tax returns.
Corporations and LLCs make sense for business owners who either (1) run a risk of being sued by customers or of piling up a lot of business debts, or (2) have substantial personal assets they want to protect from business creditors. To learn more about forming an LLC or a corporation, see Nolo’s articles on each topic.
nonprofit corporation (not-for-profit):
A nonprofit corporation is a corporation formed to carry out a charitable, educational, religious, literary, or scientific purpose. A nonprofit can raise much-needed funds by soliciting public and private grant money and donations from individuals and companies. The federal and state governments do not generally tax nonprofit corporations on money they take in that is related to their nonprofit purpose, because of the benefits they contribute to society. To learn more about nonprofit corporations, see Nonprofit Basics.
Some people dream of forming a business of true equals — an organization owned and operated democratically by its members. These grassroots business organizers often refer to their businesses as a “group,” “collective,” or “co-op” — but these are often informal rather than legal labels. For example, a consumer co-op could be formed to run a food store, a bookstore, or any other retail business. Or a workers’ co-op could be created to manufacture and sell arts and crafts. Most states do have specific laws dealing with the set-up of cooperatives, and in some states you can file paperwork with the secretary of state’s office to have your cooperative formally recognized by the state. Check with your secretary of state’s office for more information.
I know. It’s a lot to take in and it looks really daunting, especially when all you want to do is sell paintings of octopuses wearing funny hats! Trust me though, the security of knowing that your ass is covered when Cthulhu (or Disney) rises from the deep and tries to sue you for copyright infringement is worth the headache. I’ll be including links to a few useful websites that can explain it in much easier to understand terms.
The other thing I want to discuss (and I’ll be brief so you can go take advil that much faster) is the Dissolution Agreement. While this is not a totally necessary piece of paperwork to have it is a really good idea. Essentially what this document does is cover your butt if your partnership goes pear-shaped or civilization collapses and you need to stop selling paintings of octopuses wearing hats and have to start painting your new overlord King Whiskers Von Slappenface Lord of the vast litterbox formerly known as Earth.
In all seriousness though a Dissolution agreement should include such details as who pays off any debts the business has incurred, how the remaining stockpile of Octopus paintings (I really like octopi) should be sold, how you want to split up the materials and or money remaining after paying off your debts and what will happen to the business name and other assets. You can also include clauses such as a Buy Out Option where one partner can opt to buy the business from the other and have it all to themselves or a Noncompetition Clause where you both agree not to paint Octopuses in funny hats for a specific period of time and neither of you sells anything at the same venue.
Paperwork may be the chain that binds but it’s also the bolt cutters that set you free if it all goes to hell so make the most of your new tools just try not to burn the house down ok?
http://www.nolo.com/legal-encyclopedia/learn-about-business-ownership-structures-29785.html – This site is a fantastic resorce for learning about the various types of ownership, really in depth FAQ section.
https://www.legalshield.com – This site offers legal protection for a monthly fee, not unlike the mob but legal!
https://www.lawdepot.com – My business partner and I use this one to create and file legal documents. Sign up for the free trial (yes you’ll need to enter a card number) and cancel as soon as you’ve printed your forms, or keep it and use it over and over again.