Do Business Well

If the company needs more money, you can lend your own funds to the corporation. The interest you earn is deductible to the company. Later you can pay back the loan. Of course, this principal passes back to you without tax. If you had capitalized the corporation at a higher level instead of using this loan technique, you would not have received tax-advantaged interest. Additionally, if you wanted to take out your original capital it might be seen as a dividend. In any case it would require the transfer of stock that would reduce your ownership if there was more than one owner. Continue Reading »

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A corporation is owned by its stockholders. There may be one stockholder holding all the shares, or there may be millions of shareholders holding various amounts of shares. Without going into details that are far beyond the scope of a business this size, I should point out that it is also possible for corporations to sell various classes of shares with various rights and preferences. For the very small business, we can limit our discussion to two types of simple corporations: the regular, or “C” corporation, which is taxed directly by the IRS; and the “Sub S” corporation, where the earnings are passed through to the stockholders, who must pay the tax personally.

Both of these forms limit the financial exposure of the owners to their actual investment and any value in the corporation beyond that investment. This is the single greatest advantage of a corporation. However, the shareholders can lose this protection if they don’t completely separate the affairs of the corporation from their own personal affairs. They must also be certain that the amount of the original investment is clearly adequate to protect the public and the vendors from the likely activities of the corporation. Continue Reading »

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MOST ENTREPRENEURS are very proud of their products and/or services and believe that their value is what determines the company’s success. Certainly all the attention in recent years given to the quality of American products versus those of foreign companies underscores the importance of having pride in your product or service.

I don’t mean to suggest that the emphasis on product features and quality is wrong. Rather, I believe it is misguided for many companies because it throws their entrepreneurs off target in terms of the planning process and the written plan. Two issues are primary in viewing the product or service:

A. The market and what it values should determine the particulars of the product or service. The owners of a company that arranges auto repair services for corporate owners of large fleets and has $3 million in annual sales decided to develop a new software product that would remind the fleet owners about the need to do such regular maintenance as oil changes and tune- ups. The company invested $200,000 in developing and attempting to sell the product before realizing that low-level fleet managers didn’t have the authority to commit their companies to the product, which might cost $50,000 annually for a fleet of several thousand cars. Getting in to make a sales pitch to high- level financial executives proved extremely difficult. Continue Reading »

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