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Choosing the right legal structurefor your business will require thatyou contact an attorney, CPA ora business counselor. You needprofessional advice on the prosand cons of each legal structure.Legal structures include: SoleProprietorships, Partnerships,C Corporation, S Corporation (alsocalled Subchapter S Corporation),PBCs, Limited Liability Company orLimited Liability Partnership.SOLE PROPRIETORSHIPSThe majority of small businessesstart out as sole proprietorships.One person, usually the individualwho has day-to-day responsibilitiesfor running the business, ownsthe firm. Sole proprietors own allthe assets of the business and theprofits generated by it. They alsoassume complete responsibility forall of its liabilities. In the eyes of thelaw and the public, you are one inthe same with the business. Soleproprietorships pay less in taxesthan corporations. Net income fromthe business is regular income filedon the owner’s personal incometax return. Sole proprietors needa business license from the countyand/or municipality in which thebusiness operates.PARTNERSHIPSA general partnership is therelationship existing between twoor more persons who join to carryon a trade or business. Each personcontributes money, property, laboror skill and expects to share in theprofits and losses of the business.An example of a general partnershipis a husband and wife ownedbusiness. This type of partnershipis not a form of a corporation andcarries the same personal liability asa sole proprietorship.A general partnership must filean annual information returnto the IRS to report the income,deductions, gains, losses, etc., fromits operations; however, it does notpay income tax. Instead, it “passesthrough” any profits or losses to itspartners. Each partner includes hisor her share of the partnership’sincome or loss on his or her taxreturn.All partnerships should executea partnership agreement. Thepartnership agreement is acontract between the partnersof the business that detailsexpectations, contributions and theresponsibilities of each partner.Discuss future expectations withyour partner(s). Do they want togrow a company to operate or tosell short-term? How will profits bedistributed and what percentages?Each partner should contribute valueto the business and each partnermust recognize the value of theothers’ contributions. Determineahead of time who will contributecash, labor, industry experience11

and knowledge, sales leads, loansor guaranties. Responsibilities maydiffer from contributions, so be sureto define the partner’s individualresponsibilities as well as the groupresponsibilities. Clearly spell outwho can sign debt instruments forthe partnership, who determinescompensation or profit sharing,who handles the record keeping,who oversees recruitment to thepartnership, who can makeamendments to the partnershipagreement and also how thepartnership can be dissolved. In anycase, the partnership agreementshould be a written, notarizeddocument. A lawyer can draw up theagreement and act as a facilitator tocover points not previously included.There are examples of partnershipBASIC REQUIREMENTS FOR SCORPORATIONS INCLUDE: The company must be aDomestic Corporation withone class of stock Have no more than 100citizens or legal residentshareholders All your shareholders mustconsent to S Corporationstatus Use a permitted tax year Company must file IRSForm 255312agreements online at sos.tn.gov,sba.gov and score.org.CORPORATIONSIncorporation gives the business alegal existence separate from anindividual person. That is, it can ownassets and conduct business in itsown name. A business assumes acorporate identity when registeredor “incorporated” with the TennesseeSecretary of State. A corporationcan shield you and the stockholdersfrom personal liability from anylawful activities. Corporations payfederal taxes at a higher rate thansole proprietors. The corporationis liable for the state’s franchiseand excise tax. There are two basictypes of corporations, the C and SCorporations.C Corporations are standardcorporations that are primarilyused by large groups of investors.A few of the requirements to be acorporation include having a boardof directors and corporate officers,having stockholders as owners,holding regular board meetings,maintaining board minutes andapproving corporate resolutions.The corporation allows the boardto authorize certain actions suchas borrowing money, entering intocontracts and allocating corporateresources beyond routine businesstransactions. If your business is aneligible domestic corporation, youcan avoid double federal taxation

(paying taxes to the corporationand again to the shareholders) bycreating a S Corporation under therules of Subchapter S of the InternalRevenue Code. Under the laws ofTennessee, an S Corporation isincorporated; therefore, they aresubject to state franchise and excisetaxes. In this way, the S Corporationpasses its items of income, loss,deduction and credits through to itsshareholders to be included on theirseparate returns.In January 2016, the public benefitcorporation (PBC) became anoption for Tennessee businesses.The classification comes from thesocial entrepreneurship movementthat combines running a profitablebusiness with improving society. APBC is similar to a standard for-profitcorporation, but is managed in away that considers the public benefitpurpose(s) listed in its charter aswell as the financial interests of itsowners.If the company is incorporatedoutside of Tennessee, you arerequired to obtain a Certificateof Evidence to conduct businessoperations within Tennessee. TheCertificate of Evidence, TCA 48-11309, is evidence that out-of-statecorporations are in good standingin their state and are authorizedto conduct business in the state ofTennessee.LIMITED LIABILITY COMPANYLimited Liability Company (LLC) isa relatively new business structureallowed by state statute. An LLCcan be expensive to organize andrequires more administrative workthan other legal forms of business.LLCs are popular because, similar toa corporation, owners have limitedpersonal liability for the debts andactions of the LLC. Other featuresof LLCs are more like a partnership,providing management flexibilityand the benefit of passthroughtaxation. Owners of an LLC are calledmembers. Since most states do notrestrict ownership, members mayinclude individuals, corporations,other LLCs and foreign entities(businesses outside of Tennessee).There is no maximum number ofmembers. Most states also permit“single member” LLCs, those havingonly one owner. A few types ofbusinesses generally cannot beLLCs, such as banks and insurance13

companies. There are special rulesfor foreign LLCs.The Tennessee Bar Association (TBA)will guide you to a legal referralservice and help you determineif you would qualify for free legalservice. For more information, visittba.org/access-to-justice.The Tennessee Society of CertifiedPublic Accountants (TSCPA) is thestate professional organizationfor certified public accountants.TSCPA can help businesses find aCertified Public Accountant (CPA)to assist with the startup andrunning of the business. TSCPAalso has an online Small BusinessResource Center. The Small BusinessResource Center’s mission is toeducate, provide information andresources that would assist smallbusiness enterprises. This and moreinformation can be found online attncpa.org.FOREIGN-OWNED (OUT-OF-STATE)CORPORATIONSThe state of Tennessee recognizesbusinesses incorporated outsideof Tennessee as foreign-owned (orout-of-state) corporations. Whenyou relocate your business toTennessee, you will need to decideif you will operate your businessas a foreign-owned businessor establish your business as aTennessee corporation. Foreignowned businesses pay a one time14 600 fee and a 20 annual fee tothe Tennessee Secretary of State.You will need to fill out applicationform ss-4429 for corporations andapplication form ss-4236 for an LLC.These forms can be found online attn.gov/sos. A letter of good standingfrom your original state needsto accompany your application.Typically, remaining a foreignowned business is beneficial only ifyou plan to continue operations inyour original state. A trusted CPAcan advise you on the specific taxliabilities for your business.REQUIREMENTS FOR AN LLCINCLUDE: Membership fee is dueannually LLC fees range from 300 3,000 An annual report filed withthe Secretary of State Financial records preparedfor any member requestingthem Board minutes recorded andmaintained Memberships sold onlywhen all the members agreeto the transaction

If you plan to cease operations inthe state you are moving from, youshould register your business withthe Tennessee Secretary of Stateas a Tennessee corporation. Youcan register your new corporation attnbear.tn.gov/Ecommerce. Certainregistrations can be filed and paidfor online, but others will requirethat documents be printed andmailed. In addition to registeringyour corporation with the TennesseeSecretary of State, you will alsoneed to register with the Tennesseedepartments of Revenue and Laborand Workforce Development.You will most likely need to obtainlocal business licenses throughthe county clerk office wherethe business will be located inTennessee. If you are in a regulatedindustry such as general contracting,that requires specific licenses,check with the regulatory agencywho licenses you to see if they havea reciprocal agreement with thestate of Tennessee to transfer yourlicense.bank account, applying for businesslicenses and filing a tax return bymail.You can register for your FEIN onlineat irs.gov or by calling1-800-829-4933. All corporationsand partnerships are required tohave an FEIN.ADVANTAGES OF TENNESSEEThere are many benefits torelocating your business toTennessee. Tennessee fosters a probusiness climate that gives accessto vital economic components, suchas a right-to-work environment, adependable and educated workforceand a wealth of technologyresources that provide opportunityfor business growth and profitability.In addition, Tennessee offers areasonable cost of living and doesnot impose a personal state incometax or a state property tax.FEINIf you do not want to use yoursocial security number to identifyyour business, you are requiredto obtain a Federal EmployerIdentification Number (FEIN) fromthe IRS. The FEIN is your business’spermanent identification numberand can be used for most of yourbusiness needs such as opening a15

Tennessee compares favorably withthe cost of living in other states. Infact, its eleven largest cities rankbelow the national average forcost of living and housing costs areamong the lowest in the nation.Tennessee enjoys a generallymild climate, providing favorableconditions and a minimum ofweather related disruptions.Tennessee borders eight states andis within a day’s drive of 75 percentof the U.S. population.Tennessee has a strongentrepreneurial climate. Recently,a national study ranked Tennesseeas having the fourth highestentrepreneurial activity rate in thenation. The state of Tennesseesupports small businesses andentrepreneurs with a low businesstax burden, lower cost of living, anonline business registration system,access to nontraditional financingand a diverse, robust economy withclose proximity to three-quarters ofthe U.S. population.RELOCATING YOUR FAMILYThe state of Tennessee providesinformation at tn.gov with helpfullinks and information on becominga legal resident in Tennessee. Thereare also resources to help youfamiliarize yourself with Tennessee’scommunities, neighborhoods andeducation systems.16

CHAPTER NOTES17

A key ingredient in every businessis a plan. If you have a new ideaand don’t need to have a traditionalbusiness plan for securing funding,you could use a business modelcanvas.What’s the difference? Detail. It’s alsoa dynamic versus static approach.The traditional plan tends to usemore static information, whereasthe business model canvas gives youa dynamic, visual structure that youcan be adjust. Both versions serve apurpose.If your business is in a well-definedindustry and your landlord asked forone before signing the lease then atraditional plan is the better option.If your business is creative field orin a quickly shifting arena then thebusiness canvas model may serve toget started quicker.The traditional business plan maybe needed when you look forfinancing. It also helps establisha clear direction for your business.This document is not meant to bewritten and then stashed in a filecabinet. Most experts say thebusiness plan should be reviewedannually and revised to account forthe economic environment. Thetime frame depends on how fastor slow your business grows and iscompletely up to you.Look at the business plan as aliving entity that changes as thecompany grows and reaches certainmilestones.The business plan usually containsan executive summary, introduction,financial projections, personalfinancials, marketing plan, and theresumes of the management team.As part of its training program,CO.STARTERS uses its own visualcanvas model. It asks clear questionsto move you through the step bystep of the why and how thebusiness will work(costarters.co).THE BUSINESS PLANCONTAINS: Executive SummaryIntroductionMarketing PlanManagement Team ResumesFinancial ProjectionsPersonal FinancialsBusiness plan templates, includingfinancial projections, are availableonline at:tsbdc.orgscore.orgsba.govNext page: Canvas model credit: Co.Starters19

CUSTOMERPROBLEMWHO DO YOU SERVE?WHAT IS THE PROBLEM YOURCUSTOMER HAS?ALTERNATIVESHOW IS YOUR CUSTOMERCURRENTLY SOLVING THE PROBLEM?WHAT ARE THE ALTERNATIVE SOLUTIONSTO THE PROBLEM? WHAT’S THECOMPETITION?SOLUTIONWHAT DO YOU OFFER YOUR CUSTOMER?WHAT DOES YOUR CUSTOMER GET?STARTUP NEEDSWHAT ARE YOUR ONE-TIME NEEDS TO GET STARTED (MONEY,PEOPLE, THINGS, TECHNOLOGY, ACTIVITIES) ?20

MESSAGEREVENUEWHAT IS YOUR STORY?HOW DOES YOUR CUSTOMER HEAR IT?HOW DO YOU MAKE MONEY FROMYOUR CUSTOMER?DISTRIBUTIONHOW DOES YOUR PRODUCT ORSERVICEGET TO YOUR CUSTOMER?BENEFITWHY DOES YOUR CUSTOMER WANTYOUR PRODUCT ORSERVICE? HOW DO YOU SOLVE THEPROBLEM?ADVANTAGEWHAT GIVES YOU THE EDGE OVER THE ALTERNATIVES?WHY ARE YOU THE BEST PERSON TO DO THIS?COSTSWHAT ONGOING NEEDS ARE ESSENTIAL TOKEEP YOU GOING (MONEY, PEOPLE, THINGS,TECHNOLOGY, ACTIVITIES) ?21

THE MARKETING PLANTHE BUSINESS PLANEXECUTIVE SUMMARYThe executive summary is the firstpage of the business plan. Writeit last. This summary is yourfirst selling point followed by yourfinancial projections when trying toget financing. If you’re looking fora loan, include the amount you’reasking for, purpose and how theloan will be paid back.INTRODUCTIONIn this section, you include thedetails of your business:a description of the company’soperations, primary market,background and eventual goals.Explain the company structure,legal structure (sole ownership,partnership, corporation or limitedliability) and business location.Include product and/or serviceand identify your company orentrepreneur name. This sectionshould be two to three sentences.22This is one of the crucial aspectsof your business plan. In thissection, you’ll include a marketanalysis, identify competitors,your target market and amarketing plan. You want to provideinformation on the economicenvironment to tell how well theindustry is performing versus theeconomy as a whole. In addition,it should review business practicesthat may be unique to the industry.It describes competitors who mayaffect the success of your businessand identifies pricing or technicalinnovation strategies that giveit a competitive advantage.Include anyone that makes oroffers a product or service that iscomparable to yours. You’ll definethe specific customer you target, andthis section contains valuable dataabout their expectations. In addition,you will include data on purchasingdollars spent, road and foot trafficaround the business location andexpected gain in market share.The marketing plan also details thehow, when and where of youradvertisements. This is importantto show how you’ll inform customersabout your product and/or service.MANAGEMENT TEAMThis section should include thename, physical and email addresses,phone number, and relevant work

or industry experience for eachmember. The purpose of this sectionis to acquaint loan officers with theteam’s industry experience anddemonstrate their ability to operatea company. The resumes shouldoutline skills and experiencesthat facilitate the operation of acompany, and answer several keyquestions: Who is going to run thedaily operations? And balance thebooks? And market and sell? Whois your attorney? Having the team’sroles and responsibilities on paperbenefits everyone because theyknow their duties. In this section youmay include an advisory board thatsupports your company in an area(s)where your team lacks experience.FINANCIAL PROJECTIONSThe financial portion of the businessplan consists of documents thatsupport loan requests and indicatethe expected financial position ofthe company at different periods.This is the area where you should berealistic and conservative. Listthe amount of money the companyhas spent or is prepared to spend onthe business venture. This documentshould include all funds raised, theirsources (owner’s cash,loans from friends or investors)and how they’ll be used.Common documents foundin financial projections include anoperating expense report, cashflow statement, balance sheet andincome statement.Entrepreneurs say the mostcommon mistake in starting abusiness is underestimating startupcosts and the time required togenerate positive cash flow. Startupcosts are ether fixed or variablecosts. Examples, sometimesreferred to as overhead, are thepurchase or lease of equipment,supplies, utility deposits, furniture,fixtures and vehicles, real estaterent or mortgage. They will be thesame regardless of the volumeof business generated. Variablecosts such as payroll, inventory,utility bills, production waste costs,unanticipated production costsand underestimated job quotesare associated with the volume ofoperatio

STARTING A NEW BUSINESS The benefits of starting your own business include flexible hours, being your own boss, getting away from a corporate setting and having no limit to your income. The time and energy needed to run a startup business as well as the stress on family and finances are