Survival of the Fittest - Page 2 of 10

Survival of the Fittest

pages, we address the key areas on which small-business owners need to focus: business structure, financing, marketing and advertising, technology, branding, growing, and exit strategy—plus we provide essential resources and expert advice.

Anyone can set off for uncharted territory. They just have to be equipped to handle whatever comes. And those who _complete the trip unbowed and unbeaten will be well on the path to profitability.

A Sound Setup
Choosing an ownership structure can be tricky, but knowing your options can help determine the right fit
By Anthony Calypso
Over four decades and a myriad of changes, _College Crib, a Nashville, Tennessee-based Greek fraternity and sorority apparel store, is still standing strong. Started in 1966 by the late Earl Price Sr. and Hortense Price-Jones, the business began selling T-shirts and other paraphernalia from a 600-square-foot space. Like most businesses, College Crib was set up as a sole proprietorship. By the 1990s, College Crib was in the hands of the couple’s son, Treachery Price; it was then that the Price family redefined the scope of their business by purchasing a portion of the surrounding property and restructuring the company.

Today, Price Plaza is a 12,000-square-foot shopping area that rents retail space and houses College Crib in a 4,000-square-foot store. The family meets weekly, including Price’s retired mother, to discuss company objectives. The Price family incorporated each of the business entities: The College Crib and Price Plaza are incorporated as C corporations with limited liability under the umbrella company, Price Investment Properties.

“If anyone got hurt [at the store] or if anyone tried to sue, we wouldn’t lose the business,” says Price, 39, co-owner of the company. “It’s like insurance—great coverage when you need it.”

Choosing the right type of corporate identity can help ensure that a business has a foundation to build upon. Of course, there is plenty to consider, but there are a host of resources to help entrepreneurs navigate the process (see sidebar, “Choosing Wisely”).

A critical element to an entrepreneur’s success is deciding between the pros and cons of business structures. Typical choices include a general corporation, a limited liability company, or a company qualified under subchapter ‘S’ of the Internal Revenue Code.

“The choice of entity is often driven primarily by tax concerns,” says Kevin L. Freeman, a Chicago-based corporate attorney with Drinker, Biddle & Reath L.L.P. “But generally speaking, in addition to tax considerations, the decision is also driven by the number of equity owners, the type of equity owners, management structure, and cost of filing formation fees.”

“The trend among entrepreneurs is to form a limited liability company or an S corporation,” Freeman continues. Both types contain business-related flexibilities and restrictions. Freeman recommends that entrepreneurs decide prior to formation (to avoid potential tax ramifications later on) which entity might best suit their specific corporate needs, as well as consult both a tax and legal professional for guidance during the decision-making process.

Choosing Wisely
Here are the most common types of business structures along with a few things to consider for each. Note that laws for corporate entities