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You’re a Small Business, Now What Do You Do?

May 11, 2008

How to Set Up and Leverage an Infrastructure for a Small Business

Part I
It takes more than just an idea, some money and an office to get a business up and running. You need an infrastructure. Just what does it mean to set up a business infrastructure? It takes some planning and making a few key decisions before you sign any legal paperwork. For example, on a small scale, you are going to need someone to help you with the bookkeeping and someone to help you with payroll. But there are many more considerations. Let’s take a look at a few.

First, you need to decide what type of company you want to become. As important as it was in determining the culture of your company, you will want to consider your business’ structure, keeping in mind who is in charge, how big you want the company to grow, how many employees the business will have and how you want to handle day-to-day operations. There are many business structures in the United States. Most states have information online covering the type of structure available; here’s a useful site from the state of California.

Here are six types of business structures, each with its own legal, tax and business ramifications:

  1. A Sole Proprietorship is when an individual owns and operates a business by him/herself.
  2. A Corporation, of which there are many types, is a legal
    entity that exists separately from its owners. There are many benefits
    to incorporation, including limiting the owners from personal liability
    and separating taxes from the owners and the company. Offering stocks
    or bonds can generate additional capital for a corporation and a
    corporation can live on, well past the death or retirement of the
    owners.
  3. A Limited Liability Company (LLC) offers liability protection
    similar to that of a corporation but is taxed differently. One or more
    managers or one or more members may manage LLCs.
  4. In a Limited Partnership, there must be at least one general
    partner that acts as the controlling partner while the liability of
    limited partners is normally limited to the amount of control or
    participation they have engaged in.
  5. General Partnership is when two or more people form an association for profit.
  6. A Limited Liability Partnership is designed for accountants,
    lawyers and architects or companies with services related to those
    professional areas. A limited liability partnership is required to
    maintain certain levels of insurance as required by law.

As a venture backed company, Bill.com, Inc. really only had one choice.  Can you guess? Yep, it is a corporation.  The primary reasons include having the potential for multiple investors and many shareholders and the need for sheltering the investors from any liabilities. 

Here are some useful links with more detailed explanations on the legal structures of businesses in the US:

In Part II, we'll discuss key people and processes in your infrastructure.

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