vary from state to state.
Sole Proprietorship
No state filing required
Unlimited liability, including personal assets
Full management control
Does not face double taxation
The owner or owners’ personal wealth and assets are linked to the business. All liability—financial and legal—is with the owners, rather than the company itself
General Partnership/Proprietorship
No state filing required
Unlimited liability
Is not taxed as an entity
Partners arrange/agree on management structure
Limited Liability Company (L.L.C.)
Available in all states; state filing required
Can consist of an unlimited number of _owners/partners
No restrictions on the class of stock(s) offerings
Retroactive changes to the operating agreement are permissible
Members and/or member–managers make _managerial decisions
C Corporation
Available in all states; state filing required
Owners have limited personal liability
Managerial decisions made by an elected board
Business must pay its own income taxes on profits
S Corporation
Available in all states
Must offer just one class of stock
Limited to 100 shareholders
Retroactive changes to operating agreement impermissible
Taxed as an entity: profits also taxed
A board of directors makes managerial decisions
Sources: Illi
nois Institute of Continuing Legal Education (www.iicle.com), Harvard Business Services Inc. (www.delawareinc.com) and nolo. (www.nolo.com)
FINANCING
Capital Resources
Money Matters
Using sound resources, you can find capital for your business
By Carolyn M. Brown
Fashion designer Kara Saun garnered national praise as runner-up on the first season of Bravo’s reality competition series Project Runway. Showing her styles at the 2005 New York Olympus Fashion Week, Saun not only wowed _television viewers, she also inspired an angel investor from _Connecticut to help launch her Fall 2006 clothing line at Los Angeles Fashion Week.
“He and his wife saw me on Project Runway,” says Saun. “He liked my work and personality.” Over the course of six to eight months from their initial meeting, a contract was drawn whereby Saun’s investor (who provided an amount in the low six figures) would get an equity percentage, but she would retain full creative and operational control.
Having a solid business plan is what helped seal the deal, says the 39-year-old Los Angeles-based designer. “Even though he sought me out, I still needed a strong presentation,” says Saun on what investors expect. “I worked with two business writers and my accountant. I had a full budget and marketing plan. They want to see what the profits are going to be and the return on their investment.”
Saun’s line of gowns and cocktail dresses, starting at $1,500, is sold in boutiques throughout California, New York, Texas, and Connecticut and at www.karasaun.com. She still designs custom clothing for celebrity clientele and does costume design for television shows. Next, Saun wants to secure second-round financing to sell her line in high-end retail stores such as Nordstrom and Saks Fifth Avenue.
A shortfall of capital is one of the most commonly cited reasons businesses fail, says Todd McCrackin, president of the National Small Business Association (NSBA), a small-business advocacy group based in Washington, D.C. These days, it is tougher than ever for entrepreneurs to raise money.
According to the NSBA, small businesses in 2007 were less likely to obtain adequate financing than they were 10 years ago. For America’s smallest businesses, credit cards are a primary source of financing, followed by earnings of