DISCLAIMER: I am not a lawyer or an accountant. It’s always a good idea to check with professionals about these sorts of issues. This is merely a general discussion so you can discuss things intelligently with your paid professionals.

OK, you’ve got your first product or service idea, you’ve figured out pricing, how you’re going to market it and all the other little details. Now you have to decide how to structure you business. There are four forms your business can take (in the US):

• Sole Proprietorship - This is you. If you don’t do anything you are a sole proprietor. They are simple and cheap to set up — where I live the only cost is $14 to register a DBA (”Doing Business As”) form with the county. It doesn’t even cost that if you do everything in your own name. You report profit and loss on a Schedule C for Federal Taxes. You are personally liable for everything that happens with the business. For instance, let’s say Bob is delivering cookies to one of his hotel clients and runs a red light causing an accident. Not only can his cookie business be sued but they can take his house because he and the business are the same.

• Partnerships - There are 2 kinds of partnerships — General and Limited. A General Partnership is basically a sole proprietorship for 2 or more people. The biggest disadvantage to a General partnership in my opinion is that each partner is personally liable for all debts of the partnership. For instance, if Fred and John enter into a partnership and Fred skips town with all the money, John is still responsible for all the debts of the partnership.

  This shortcoming is partially addressed by the Limited Partnership. In a limited partnership one or more of the partners are limited partners and one or more are general partners. General partners are repsonsible for the day to day management of the business and are fully liable for debts of the partnership. Limited partners are passive investors that are liable for debts only to the extent that their investment is at risk. In other words, in the above example, Fred (the general partner) skips town with all the money but John (the limited partner) only loses his original investment. He is not responsible for things like continuing to pay the rent, liabilities to suppliers, and so forth.

• Corporations – A corporation is a separate legal entity from the owner or owners. In the eyes of the law a corporation is a totally different “person” from you. Corporations require legal paperwork to be filed with the state government (typically) and specific rules have to be followed regarding corporate minutes, board meeting and so on. All of this work provides several advantages, however. Stockholders (owners) have no liability outside of their investment and there are a number of things corporations can do, such as provide retirement plans, that other business forms typically can’t. Income from corporations can be subject to double taxation although this can typically be avoided.

  From the standpoint of taxes there are two different kinds of corporations — a C corporation and an S corporation. A C corporation is a regular like IBM. An S corporation acts like a sole proprietorship or partnership (depending on the number of shareholders) for the purpose of income tax, that is, profits and losses are reported on the individual’s Schedule C.

• Limited Liability Company (LLC)- The LLC is a relatively new type of hybrid business structure that is now permissible in most, if not all,  states. It is designed to provide the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership. Formation is more complex and formal than that of a general partnership.

  The owners are members, and the duration of the LLC is usually determined when the organization papers are filed. The time limit can be continued if desired by a vote of the members at the time of expiration. LLC’s generally must not have more than two of the four characteristics that define corporations: Limited liability to the extent of assets; continuity of life; centralization of management; and free transferability of ownership interests.

Which is best? That’s for you and your advisor’s to determine. In my opinion, most micros and submicros are perfectly well served by the sole proprietorship form.

The importance of a business plan cannot be overemphasized in any business. They are just as important to a micro-business although they don’t need to be nearly as formal. If you are seeking venture capital or financing you’re likely to need a business plan of 50-100 pages. For a micro-business, you shouldn’t need more than 5.

A business plan precisely defines your business and identifies your goals. The basic components include a current and projected balance sheet, an income statement, and a cash flow analysis. It helps you allocate resources properly, handle unforeseen complications, and make good business decisions.

Many entrepreneurs drag their feet when it comes to preparing a written document. They argue that their marketplace changes too fast for a business plan to be useful or that they just don’t have enough time. But just as a builder won’t begin construction without a blueprint, eager business owners shouldn’t rush into new ventures without a business plan.

Before you begin writing your business plan, consider four core questions:

• What service or product does your business provide and what needs does it fill?

• Who are the potential customers for your product or service and why will they purchase it from you?

• How will you reach your potential customers?

• Where will you get the financial resources to start your business?

What goes in a business plan? The body can be divided into four distinct sections:

• Description of the business

• Marketing

• Finances

• Management

Addenda should include an executive summary, supporting documents, and financial projections.

A business plan is a tool with three basic purposes: communication, management, and planning. As a communication tool, it is used to attract investment capital, secure loans, convince workers to hire on, and assist in attracting strategic business partners which are typically not goals of micro-businesses.

As a management tool, the business plan helps you track, monitor and evaluate your progress. The business plan is a living document that you will modify as you gain knowledge and experience. By using your business plan to establish timelines and milestones, you can gauge your progress and compare your projections to actual accomplishments. It can also let you know when when it’s time to shut down a particular venture. Each of your micro-businesses should have a business plan. That way you can compare the time and money you’re putting into each so that when you begin to get squeezed on on or the other you can shut down the worst performer.

As a planning tool, the business plan guides you through the various phases of your business. A thoughtful plan will help identify roadblocks and obstacles so that you can avoid them and establish alternatives. This is particularly important for micro-businesses that are run by more than one person. Having clearly defined roles in critical in these situations.

The SBA has a pretty good section on its website that discusses business plans in greater detail. Just remember that their target audience is small businesses that are looking for financing. Micros just need a short outline to keep everything defined.

We’re going to get into this early because in most cases if you don’t have a website you don’t have a business. This isn’t always the case but you’re going to want to get one pretty quickly.

A domain is the thing you type into your browser window. For instance the domain name here is OrangeIsTheNewBlog.com. Others include  google.com, amazon.com and so on. The most common top level domains in the US are com, org, net and gov which used to stand for commercial, non-profit organizations, network infrastructure and government.  Without getting too specific your domain is your address on the Internet. A domain can affect people the same way a physical address affects how people feel about you and your business. For instance, it’s a well known fact that people are more likely to buy mail order from 123 Main St, Suite 27 than they are from PO Box 27. In the same way people are more likely to buy from a website with an address like www.amazon.com than they are something like www.obviously-a-webhost.com/stores/ mybusiness/ The first is easier to remember and more professional looking.

The great thing about the Internet is that addresses are all the same price… totally unlike 5th Avenue versus South Bronx. If you go to www.godaddy.com they’ll register any available dot com domain for about nine bucks a year. You can spend a lot more but you’ll get exactly the same thing regardless of the registrar (that’s the official title of companies engaged in registering domains) you go to. Godaddy offers other services like email and web hosting but I’ve never used any of those. I do use them exclusively for registrations though.

Regardless of who you use, it’s generally a pretty painless process. On most registrar’s home pages you’ll find a place right near the middle of the page for you to type in the domain name you want. It may take several tries to find one that’s available so it’s a good idea to have a selection of domain names already picked out.