From: duxbury@fraser.sfu.ca (Nancy Ann Duxbury)
Subject: Re: misc.entrepreneurs FAQ
Organization: Simon Fraser University, Burnaby, B.C., Canada
Date: Fri, 9 Oct 1992 18:19:45 GMT

Hello.

I am submitting this as a part of a FAQ (Frequently Asked Questions)
for misc.entrepreneurs. It is by no means complete. What I have to
offer are not the secrets of life in the universe. Anyone who wishes
to add to this is more than welcome to. Anyone may distribute this
wherever the question is asked "how do I go about starting a
business?". If there is a consensus, I will post this every few weeks.
I hope some of you will find this useful.

					-Bill Currie
					 duxbury@sfu.ca
					 (Nancy's fiance)


"HOW DO I START A BUSINESS?"
	

	First of all, I am assuming that you have found either a need
or a product/service.  If you have found a need, then you should
determine how much of a need exists to make your idea viable in the
market place. If you have a product/service already, then you must
determine if there is a need. This is called market research. There
are many ways to conduct market research. It can be as simple as
sending a brief questionnaire to people you think are most likely to
buy your product/service. It can also be as complicated as setting up
several test markets in several places to see the reaction. Anyhow, it could
save you a lot time, money, and effort to see if there is a market
before you start thinking about risking your investment.

	You should have a business plan. This is a document that you
write that describes all of the details of your business. From idea to
need to production to marketing, this is the one report you need to a.) JUSTIFY for yourself the probability of success for your business,
b.)Obtain financing from bankers, venture capitalists, or other
investors. A business plan is also a useful guide to refer to when you
start to lose sight of your goals. (If you are buying a franchise or
getting into a MLM, this should already be done for you. If it is not
done to your satisfaction, then the risk is probably too great to
invest any money in. The franchise fee you pay is supposed to fund
market research in your area. If this is not done, then you're
probably buying a pig in a poke.)

LEGAL FORMS AND PERMITS:

	Legal concerns usually differ from place to place. In general,
however, virtually all businesses in North America have three basic
legal structures: sole proprietorship, partnership, and
limited-liability corporation.

SOLE PROPRIETORSHIP

	This is the most basic form of business. In this type of
company, there can only be one owner. The owner has the choice of
doing business under his own name (ie. "John Doe Enterprises") or
under a firm name (ie. "Acme Widgets"). If John Doe decides to use a
firm name, it is normally a good idea to register the name with the
county, state or province. Registering the name will give the company
name some protection to prevent others from taking it. You will also
receive a certificate stating that you are DOING BUSINESS AS "Acme
Widgets". Many banks won't even let you open a simple bank account for
your company without this certificate. More info about how to register later.

	Under a sole proprietorship,  the owner is responsible for all
of the profits and losses. Any profits made must be reported on a tax
return as personal income. Any losses taken while in business can also
be written off against your personal income. This is useful if you are
working at another job while starting your business. Most importantly,
the owner assumes complete liability for the business. If the owner
takes out a loan for the business and defaults, then the owner is the
one that gets the lousy credit rating...not the business. If the
business is named in a lawsuit, the owner will be the one who pays
legal fees and damages. If the business goes bankrupt, creditors can
seize personal belongings of the owner (in many cases, this includes
your house and car) Also, if the proprietor dies, the business dies as well. 

	There are other advantages to starting up this way, beyond
writing losses off your personal income tax. It costs less to register
than it does to incorporate. There are fewer records to keep than a
corporation. And, in some parts of the U.S., there is a lower tax rate
for sole proprietorships. However, this is more the exception than the rule. An
accountant could better inform you of tax advantages in your state.

PARTNERSHIP

	In this type of business, two or more people have formed a
company. Each person has invested a percentage (usually equal) to be a
part of the company. In a normal partnership, each person involved is
still responsible for ALL of the liabilities of the company. However,
if they form a "limited partnership", then each person is only
responsible for the percentage of the debts equal to the percentage of
the company that person owns.

	Partnerships are registered very much the same way as sole
proprietorships are.  However, much agreement is required among the
partners as to how matters involving the company are dealt with. These
things should be written down in a legal agreement BEFORE agreeing to
the partnership. Things to include in the agreement are
dispute-solving mechanisms (ie. such as a vote, arbitration),
procedure to follow should a partner die or become incapacitated,
mechanisms to allow one partner to buy the other out should there be
an unresolvable dispute, and many others. This should be done with a
lawyer who specializes in business law.

	Unfortunately, even the best partnerships have disputes at
some point. You should think very carefully before entering into one.

LIMITED LIABILITY CORPORATION

	This is the most complex form of  business. When you form a
corporation, you are creating a "person" in the eyes of the law. A
corporation has its own income, tax return, and possessions. It can
sue people and other corporations, and it can be sued by people and
other corporations. If the company goes bankrupt, then creditors can
only seize assets of the company, not the those of the shareholders
(although directors of the company can be held liable for some debts,
such as employee wages, in some areas).  Shareholders can draw money
out of the company in the form of salary, dividends, or bonuses.

	Forming a corporation involves many documents and precise
record-keeping. Fees to incorporate are also expensive, and often you
will need a lawyer to help you. However, it is useful to incorporate
if you are worried about liability, or if you are making consistent
profits. In Canada, corporate taxes are lower for small business
(revenues less than $2 million) than for individuals. In the U.S.,
there are two types of corporations: C companies and S companies
(Please correct me if I'm wrong). I don't know what the differences
are (being a Canadian), so it would be nice if someone could submit a FAQ
on this subject.

	These are the only types of companies that can use the words
"Ltd." "Inc." or "Corporation" in their names.

PERMITS AND LICENSES

	If you are forming a partnership or a sole proprietorship
under a firm name, you should register with your state or county. If
you are forming a corporation, you MUST file your memorandum and
articles of incorporation with the state/provincial or federal government.

	The first step is to do a name search. This determines whether
the name that you have selected is available for your business. Many
states, provinces and counties will do this for you for a small fee.
If they won't, a lawyer will have to do it for a not-so-small fee.
Unless you happen to be a lawyer, you cannot do this yourself for free. 

	Once you have had a name approved, you usually have it
reserved for a short period of time. During this time, you must file
your registration papers or your articles of incorporation, to protect
the name from being taken by someone else.

	Where do you get this done? It varies from place to place.
Your local chamber of commerce will be able to tell you where to get
and send the forms in your area.

	If you live in a town or city, you will almost definitely need
a business license. This will allow you to conduct business at a
particular location in the town or city. City zoning laws determine
whether you can conduct business on a site. Use your common sense when
selecting a site...the city is not going to let you start a scrapyard
in a suburban residential neighborhood. Municipalities may also levy a
business tax based on the value of the site you occupy. City Hall will
give you the details here.

	In Canada, if you expect that your revenues will exceed
$30,000, then you MUST register to collect the 7% Goods and Services
Tax. This is a pain in the butt for record-keeping, but you can have
the GST on your business purchases rebated. If your revenues are below
$30,000, then registering and collecting are optional. However, you
are not eligible for the GST rebate if you do not register (Please
note, this is different from the GST CREDIT that low-income people are
eligible for in their tax return). Some goods are exempted from the
GST. Revenue Canada Customs and Excise department provides more info.

	In the U.S., your state government and the IRS can explain any
business taxes you may have to collect.

	Some businesses, such as restaurants and taxi companies, may
require special permits. Here are some places to check for info:

STATE/PROVINCE OR LOCAL CHAMBER OF COMMERCE
STATE/PROVINCE OR LOCAL ECONOMIC DEVELOPMENT AUTHORITY:
	I highly recommend this as a prime source! A good economic development
authority can provide all of the forms needed to register your
business. They can also provide useful market information (such as
population info and demographics) and info on local or state business
incentives (ie. tax credits, loans and grants). In many cases, they
can also give free or low-cost advice on the basics of setting up a
business. This should be your first stop!

STATE/PROVINCIAL DEPARTMENT OF COMMERCE
CITY HALL
UNIVERSITY ENTREPRENEUR CENTRES
LOCAL LIBRARIES

	Universities and libraries carry a lot of information to help
you make your venture a success. Books have been written to help you
write a winning business plan, and to help you deal with bureaucracy
during the start-up. 


Please note that I am neither a lawyer, or an accountant. More
importantly, THIS MUST NOT BE USED AS A REPLACEMENT FOR PROPER LEGAL
ADVICE! This FAQ is meant to be used as general information to help
people do much of legwork of forming a business themselves.

I don't have the expertise to create a FAQ on the topics of VISA/MC
merchant accounts, or 900 numbers. If someone else does, feel free to
add to this! Good Luck!

					-Bill Currie