What do you want? Yes. You! What do you really want in a relationship? I’m not asking what you want from the other party but what do you want? Do you want full control? Do you want someone to contribute to the pie? Do you want to share your income? Before you get into a relationship, you have to find out what you want at this point in your life. I'm here to let you know the pros and cons of being single versus taking the leap to form a partnership in business. Yes - It can be complicated. So do your RESEARCH before making your move.
If you want to be an independent woman, a sole proprietorship is the business structure for you! This is a business run by one individual for his or her own benefit. It is the simplest form of business organization but beware of what it takes to be fully independent. There is risk involved. 100% risk to be exact! Whatever happens to the business will impact you personally. The liabilities associated with the business are the personal liabilities of the owner. The proprietor undertakes the risks of the business to the extent of his/her assets. So if you want it ALL, you can have everything as a sole proprietorship. You are entitled to ALL profits and are responsible for ALL of your business’s debts, losses, and liabilities. Because you have it all, everything dies when you die. Proprietorships have no existence apart from the owners. So the business terminates upon the proprietor’s death. YIKES! So if you want to leave a legacy and have a company that prospers beyond your contributions, you may want to invest your time and money into a different type of relationship.
So how do you become a sole proprietorship? Well if you have not filed the legal papers in order to be married as a partner, LLC, or Corporation, you are listed as a sole proprietorship by default. That’s right! You do not have to take any formal action to form a sole proprietorship. As long as you are the only owner, this status automatically comes form your business activities. When I received my DBA, I automatically became a sole proprietorship. What’s DBA? Let me break it down so that it can forever be broken. If you choose to operate under a name different than your own, you will most likely have to file a fictitious name (also known as an assumed name, trade name, or DBA name, short for “doing business as”). You must choose an original name. It cannot already be claimed by another business. So when the idea popped in my head to create CEO Unlimited in 2013, I completed all of the necessary work in order to obtain exclusive rights to use that name in business.
So what about the money? What do I need to know about taxes? Great question! Because you and your business are one and the same, the business itself is not taxed separately. The sole proprietorship income is YOUR income. You report income and/or losses and expenses with a Schedule C and the standard Form 1040. The “bottom-line amount” from Schedule C transfers to your personal tax return. If you want to learn more about personal taxation, you can take a FREE basic business course during tax season! If you prefer to be in a classroom setting, all volunteer tax organizations such as Ladder Up, Center for Economic Program, and Vita offer training to all volunteers seeking to be certified for the tax year.
Questions to Consider for Single Ladies
So what are you thinking? Are you leaning towards sole proprietorship or do you want to explore your options? Here are a couple of questions to consider when determining if you should continue to be single or get in a relationship.
·Do you want complete control? If you are a sole proprietorship, you have complete control over all of the decisions. No one can tell you what to do. You wear the pants each and every day!
·Will you need to raise money from external sources? It’s tougher to raise money as a sole proprietorship. Banks are also hesitant to lend money to a sole proprietorship because of the perceived lack of credibility when it comes to repayment if the business fails. Can a sole proprietor issue stock? Sorry to be the bearer of bad news but you can’t sell stock in the business.
Now some of you are probably thinking, “I like the idea of a sole proprietorship but I don’t want to take on 100% risk”. No worries. There are more options! You don’t have to settle. EVER.
If you are ready to give up your single card, you may be interested in a partnership. A partnership is a single business where two or more people share ownership. What’s the key word? SHARE. That means you have to eliminate the mentality that “it’s your way or the high way” and adopt the mantra that “teamwork makes the dream work”. Each partner contributes to all aspects of the business. This includes money, property, labor or skill. In return, each partner shares in the profits and losses of the business. Your level of engagement in the partnership will be based on the type of partnership arrangement you are involved with. There are three general types of partnerships: General Partnerships, Limited Partnerships, and Joint Ventures. What’s the difference? We will have to save that for a different date and time. My goal is to help people overcome their initial relationship concerns in this blog.
Because it’s not all about you in a partnership, communication is key. In order to maximize communication, you should discuss a variety of issues upfront and develop a legal partnership agreement. This agreement should document how future business decisions will be made, including how the partners will divide profits, resolve disputes, change ownership (bring in new partners or buy out current partners) and how to dissolve the partnership. Although partnership agreements are not legally required, they are strongly encouraged.
How do you form a partnership? You must register your business with your state. This is generally done through your Secretary of State’s office. As a partnership, you have to discuss the almighty name. That’s right. We all know how much a name can mean. Women, we have to make this decision all of the time. Are we going to take our husband’s last name or operate under a dual last name? For partnerships, your legal name is the name given in your partnership agreement or the last name of the partners. Once your business is registered, you must obtain business licenses and permits. If you are hiring employees, get ready to read more literature. Read more about hiring employees in the federal and state regulations for employers compliance book.
Now I know you are eager to hear about taxation for partnerships. Here it goes! I will try my best to explain this without scaring you with all of the tax terminology. Generally, the IRS does not consider partnerships to be separate from their owners for tax purposes. That's why partnerships are considered "pass-through" entities. All of the profits and losses of the partnership "pass through" the business to the partners. The partners pay taxes on their share of the profits or deduct their share of the losses on their individual income tax returns. For partnerships, paying taxes also involves understanding difficult terms like "distributive share", "special allocation," and "substantial economic effect". I am not about to go that deep into partnerships but we all know there is more to consider when you add another party to the table.
What to Consider before Entering a Relationship
·Who is paying the bills? Should we split profits and losses 50-50? An equal distribution of payment may sound like fair compensation at the start, but will you resent your partner if you find yourself putting in more work or effort. A partnership goes beyond money. Decide from the outset the roles and responsibilities each player will have and how disagreements will be resolved.
·Make sure you and your partner are on the same page. What do you want in a relationship? Where do you see the relationship a year from now? 5 years later? Each party should have a vision for how the business will grow and expand over 5, 10, or more years. This is probably not the best conversation to have on Date 1. But you do want to ensure that you have a shared vision before you give your heart away.
·What happens if the partnership is not what I expected? Let's face it. We are so in love and sometimes forget to do our due diligence. Even after we do our research, it still doesn't turn out as we expected. What are our options? Divorce? I am not an advocate of divorce but this is something that needs to be discussed. A business, like certain marriages, requires a prenup. You need to determine what will happen when you decide to go your separate way. Prepare in advance. Determine what will happen when one or more people leave the relationship. How will they be compensated? How will the business and clientale be divided? What resources will be given to each party? Talk about it now. You would rather be safe than sorry!
Single Versus Relationship
There are pros and cons to being a sole proprietorship versus a partnership. You may encounter some extremists who think that a sole proprietorship shouldn't even exist but it all comes down to doing what is best for YOU. Relationships are complicated. Even the relationship with yourself! Don't rush any relationship. Explore your options and create the best plan for you.
You also shouldn't be afraid to pool your talents and go into business with someone else. You may have been hurt before but don't allow a past experience to sour your present possibilities. Life is an experiment. If at first you don't succeed, try again! The best part about business entities is that you have multiple options. I will discuss other relationship options in future blogs. Do your research and consult the experts in order to save you time and money. You do not want to make a costly mistake so think before you go to the deep end. Take calculated risks and enjoy your journey as an entrepreneur!
Keep Creating Endless Opportunities,
Ms. Corporate America 2015
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