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4 Things to Consider When Forming a Company

4 Things to Consider When Forming a Company

Everyone wants to live the American Dream and own a successful business. The expansion of the internet has made it very easy for you to register a company and attract a worldwide audience. However, running a business is difficult, especially within the first two years of operation. It’s stated that 75% of new businesses don’t survive more than three years because of strict competition and the lack of experience.

However, you can protect yourself from losing everything if you know what business type you should be registering. For example, did you know when you register a limited liability company your personal wealth will not be impacted because the banks and loan companies won’t be able to come after you? Today, we’ll be going over the different types of companies you can register when starting out in business. Specifically, we’ll be exploring the following types:

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  • Companies limited by shares
  • Sole proprietorship
  • Companies limited by guarantee
  • Limited liability partnerships

Companies Limited by Shares

This accounts for the majority of companies registered around the United States, Canada, and the United Kingdom. With this structure, you have completely separated yourself from the company so if anything happens, you personally won’t be held liable. For example, with this type of company, owners have limited financial liability and their personal finances will be protected. If anything happens to the company, the banks can only liquidate the belongings of the company, i.e. inventory, the building, credit registered in the company name, etc. When structuring this type of company, it’s important all lines of credit and purchases are made under the company name.

Some other benefits include:

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  • The status of “limited corporation” greatly increases your brand and credibility
  • You can sell shares to increase cash that’s available
  • Increased chance of acquisition by another company
  • Owner can easily be passed on by selling your shares
  • Larger tax breaks and credits

Sole Proprietorship

This type of company can be registered very easily by going online to the local business bureau website. A sole proprietorship is registered under your own name so you are personally liable for financial losses afterwards. It’s a risky type of business model, but people proceed with registration because they have very little start-up money. It’s recommended to avoid this type of business model when starting or switching over to limited liability as you start to grow. The only benefit of such a model is that you’ll pay very little tax compared to any other type of business structure.

Company Limited by Guarantee

This company structure is mostly associated with non-profit organizations, like charities, NGO’s, sports clubs, and membership organizations. When you open a limited guarantee company, you will hold no financial responsibility as most of the debt is protected by guarantors who have invested to support the non-profit cause. This type of company has no shareholders and are funded by a small group of private companies wishing to sponsor your cause and no profits will be distributed to them since they re-invested to help promote the non-profit objectives of the company.

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Some other benefits of this type of company formation:[1]

  • No financial loss to the non-profit organization
  • Higher tax breaks because money is given to charitable causes
  • Debt is protected by guarantors

If you will be operating a non-profit organization, then always register this type of business model.

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Limited Liability Partnerships

If you will be operating as a partnership, then a limited liability partnership (LLP) is the best type of structure to follow. Normally professionals will register this type of company to make sure everyone has a say in the decision process. Not to mention, the partners are the owners of shares never being sold so they can keep full control of the LLP. However, financial consequences can be huge if one partner decides to pursue fraudulent business deals because the whole partnership will be held responsible.

Some other benefits include:

  • Larger tax breaks for everyone in the LLP
  • Profits are shared equally amongst all partners
  • LLP members can be located anywhere in the world
  • You can appoint another company to be part of the LLP (grow company through partnerships)

Final Thoughts

If you are planning on registering a company, then use this guide to explore your options and decide which type of business works well with your objective. I would recommend a limited liability because you have full control of your company and can sell shares at any time to raise capital. All financial burden will be on the company so your personal finances and assets will be protected no matter what the outcome. I would also recommend consulting a lawyer before getting started so you have all the important information you need.

Reference

[1] https://www.1stformations.co.uk/introduction-to-company-formation/

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Rizvan Ullah

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Last Updated on June 13, 2019

15 Best Entrepreneurs Books to Start Reading Now to Be Successful

15 Best Entrepreneurs Books to Start Reading Now to Be Successful

Knowledge is power, and you’re going to need a lot of it if you’re going to be able to steer your business to success.

Without further ado, let’s take a look at the 15 best entrepreneurs books to get inspirations about success and grow your business.

1. Think and Grow Rich by Napoleon Hill

    This book has been dubbed the Granddaddy of All Motivational Literature, and it was actually the first book that gave a prescription of what it takes to be a winner.

    Napoleon Hill draws from the stories of millionaires like Henry Ford, Andrew Carnegie, and Thomas Edison to illustrate the principles he put forth.

    Get the book here!

    2. The Lean Startup by Eric Reis

      A lot of startups end up failing, but many of these failures are actually avoidable. The Lean Startup provides a different approach that is now being adopted all over the world and changing the way that companies are developed and products are being launched.

      In The Lean Startup, Eric Reis describes what is required for a company to penetrate the fog of uncertainty in order to discover a path to a sustainable and successful business.

      Get the book here!

      3. The E-Myth Revisited by Michael E. Gerber

        In a revised edition of the 150,000-copy bestseller, The E-Myth, Michael Gerber refutes some of the myths that surround starting your own business and shows just how commonplace assumptions can end up getting in the way of being able to run a successful business.

        Gerber succeeds in walking the reader through the steps that occur in the life of a business, from infancy, through the pains of growing as an adolescent, to the perspective of the mature entrepreneur.

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        Get the book here!

        4. Rework by Jason Fried

          Most of the business books that you get today will give you the same advice: draft a business plan, study the competition, look for investors, and all that.

          However, Rework shows you a more effective, easier and faster means of succeeding when running a business. By reading it, you’ll be able to know why some plans are harmful, why you don’t really need to get investors, and why you’re better of shutting out your competition.

          Get the book here!

          5. How to Win Friends and Influence People by Dale Carnegie

            This is one of the most successful motivational books in history, selling well over 15 million copies since it was released in 1936. The book is timeless, and it appeals to businesses, self-help startups, and general readers.

            Carnegie believes that a lot of successes come from an ability to communicate rather than having brilliant insights. In his book, he teaches how to value others and make them feel appreciated and loved.

            Get the book here!

            6. Outliers: The Story of Success by Malcolm Gladwell

              Through this amazing book, Malcolm Gladwell is able to take the reader on an intellectual journey through the world of ‘outliers’. He asks the question of what truly differentiates high-achievers.

              His answer to this question is that we tend to pay too much attention to what successful people are like, and less attention to where they are actually from.

              Get the book here!

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              7. Rich Dad, Poor Dad by Robert T. Kiyosaki

                This is the best personal finance book ever written. It tells the story of Kiyosaki and his two fathers; his real father, and that of his best friend (his rich dad), as well as how the two men helped him shape his opinions on money and investing.

                It refutes the myth that you need to earn high to become rich, and it distinguishes between working for money and having money work for you.

                Get the book here!

                8. The Ascent of Money: The Financial History of the World by Niall Ferguson

                  Niall Ferguson, in this book, follows the money to tell the story behind the evolution of the word’s financial system, from the beginning way back in ancient Mesopotamia to the latest occurrences in what he had dubbed Planet Finance.

                  Fergusson also reveals financial history as the backstory behind our very own history, with an argument that the evolution of debt and credit is as significant as the history of technological innovation and the rise of civilization.

                  Get the book here!

                  9. Liar’s Poker by Michael Lewis

                    Michael Lewis landed a job at Salomon Brothers after getting out of the London School of Economics and Princeton within three years, he had risen to the rank of bond salesman, making millions for the firm and cashing out steadily.

                    Liar’s Poker is the amalgamation of these years — a look behind the scenes at one of the most turbulent times in American business. His book is Lewis’s account of an era where greed and gluttony were the order of the day.

                    Get the book here!

                    10. Drive: The Surprising Truth about What Motivates Us by Michael H. Pink

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                      A lot of people see money as the best motivator. Michael pink says it’s a mistake.

                      In this provocative book, he asserts that the secret to high performance anywhere is the need to direct our lives, to learn and create, and to do better by our world and ourselves.

                      Get the book here!

                      11. Getting Things Done: The Art of Stress-Free Productivity by David Allen

                        Outdated methods don’t work in today’s world. In this book, Allen shares some awesome methods for stress-free performance that he has shared with thousands of people all over the world.

                        His premise? That productivity is proportional to your ability to relax.

                        Get the book here!

                        12. The 7 Habits of Highly Effective People by Stephen R. Covey

                          In this book, Stephen Covey presents a holistic approach for overcoming both professional and personal issues. With insights and anecdotes, Covey presents a way to live with integrity fairness, service and dignity.

                          Get the book here!

                          13. The 4-Hour Workweek: Escape the 9-5, Live Anywhere, and Join the New Rich by Tim Ferriss

                            In this book, Ferriss dishes on the tips he has learned from studying the New Rich, a subculture of people who did away with the deferred life plan and mastered time and mobility to developed luxury lifestyles for themselves.

                            If you’re looking to make your way in this revolutionary new world, this here is your compass.

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                            Get the book here!

                            14. Delivering Happiness: A Path to Profits, Passion, and Purpose by Tony Hsieh

                              The CEO of Zappos shows how a unique kind of corporate identity can help deliver a huge difference in the way results are being achieved — by creating a company that values and delivers happiness.

                              Get the book here!

                              15. Losing My Virginity: How I Survived, Had Fun, and Made a Fortune Doing Business My Way by Richard Branson

                                From Virgin Atlantic Airways, Virgin Records and V2 to Virgin Cola, Virgin Megastores and a wide array of other companies, Richard Branson is the rockstar billionaire that a lot of us want to be.

                                Branson, however, did business by following a simple philosophy:

                                “Oh, screw it, let’s do it”

                                Losing My Virginity is an unusual, borderline outrageous autobiography of one of the greatest business geniuses in the world. Branson and his friends named their business “Virgin” because that was what they were — virgins at the game.

                                Since then, he’s written his success rules, creating a global business that has no headquarters, no management structure no corporate identity as it were.

                                Get the book here!

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                                Featured photo credit: rawpixel via unsplash.com

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