The Limited Liability Company (LLC) started out slow as a business entity. Wyoming, the first US state to implement this form of business ownership, passed legislation in 1977 adopting the LLC. It took another 5 years before the next state, Florida, enacted LLC ownership. Fortunately for many business owners, the LLC adoption spread like wild fire in the 1990s. By 1997 every state and the District of Columbia accepted this form of business ownership; Hawaii was the last state to jump on the LLC band wagon.

A limited liability company offers owners limit liability for a business’ debts and contractual obligations much like a corporation, with a less complicated formation. Unlike a corporation, a LLC passes all income and losses through to its owners like partnerships. Unlike a partnership or sole proprietorship, the creation of a LLC requires a state filing and designation of at least one officer. In a sense a LLC is a hybrid of a corporation and partnership.
 
Below we list some general advantages and disadvantages of the LLC entity. However, because state laws differ, these lists may or may not apply to the state in which you operate.

Advantages of a LLC

• The income from a LLC passes through to the owners, usually meaning a reduced income tax on income and avoidance of the corporation double taxation where income is taxed at the corporation level and again when distributed to individuals.
• Owners of the LLC receive legal protection from the debts and acts of other members of the LLC.
• A LLC requires only one owner (in most states)
• A LLC can continue after the death of its owners
• Setting up and continued operation of a LLC requires far less paperwork than a corporation.

Possible Disadvantages of a LLC

• Income received from a LLC is subject to self-employment taxes
• Sale of more than 50% of the capital and profit of a LLC within a 12 month period terminates the LLC for federal income tax purposes.
• An LLC with losses greater than 35% passed to non-managers of the company may not be able to use the cash method of accounting.
• Each state’s laws regarding the LLC entity differs, possibly creating confusion for entities operating in more than one state.
• An LLC with less than two members is treated not as a partnership but as a sole proprietorship.

The New York Times ran a story in the business section on May 8, 2008 which demonstrates how business students and existing businesses benefit through collaboration. Stetson University business marketing students teamed up with Complete Parachute Solutions Inc., providing fresh marketing ideas and market research which helped Complete Parachute discover new markets and new methods of marketing.

The students provided Complete Parachutes information as to how a Democratic President might affect their business and also found new overseas markets for the company. They also spent time critiquing the company’s website and provided recommendations for making the site more user friendly and with better navigation.

The Kauffman Foundation, formed by Kansas City’s dynamic Entrepreneur, Ewing Kauffman, also encourages this type of collaboration. Vice President for Entrepreneurship, Bo Fishback cites how students research and find answers for companies interested in marketing new products.

Didi Davis Food in Ipswich, MA used a college consulting program at Babson College for putting her new business featuring gourmet condiments on track. Her business didn’t even have a business plan until she teamed up with students. Their first recommendation brought Mrs. Davis and her business into the “real world” with the recommendation for a proper accounting system. The Masters Degree student, Aditi Chowdhary, who headed the team, found the venture gave her management expertise she expects to use in her family business in India after graduation this week.

Stetson’s program is so popular with those contemplating starting a business or needing consulting work from students that Dr. Oliphant reports turning away requests from those wanting a “free diagnosis”.

When buying or selling a business in Wisconsin, the transfer may affect your unemployment insurance. For example, if you purchase at least 25% of an existing business in Wisconsin, you may continue using the unemployment insurance account of the previous owner if you choose. The previous owner’s low unemployment insurance rate may be attractive, decreasing the amount of taxes you pay.

If you choose continued use of the previous owner’s unemployment insurance account, ensure the previous owner paid all previous taxes owed and that you make timely application. See http://dwd.wisconsin.gov/UITAX/trans.htm for application deadlines. Also investigate whether any former employees are currently receiving unemployment benefits; if former employees currently receive benefits, these payments get charged to the account you assume. This may cause rate changes in the future.

If you are a current Wisconsin employer, the rate of any account assumed is combines with your current rate for an adjusted new unemployment insurance rate. If you choose not to assume an unemployment insurance account, use your current account if you already have one. Wisconsin unemployment insurance assigns new accounts to those without a previous account.

When You Must Assume an Unemployment Insurance Account

Spouses, parents and children must take over the unemployment insurance account of a business transferred to them. A business changing entity types, current partial owners assuming additional ownership and subsidiaries merging with a parent corporation must also continue use of the previous unemployment insurance account.

When a business transfers ownership, the Wisconsin Unemployment Insurance agency must be notified, regardless of whether the new ownership continues using the previous unemployment insurance account.

When s Business Transfers Occur:

Sales, leases, business reorganizations, mergers, consolidations, foreclosures, inheritance and bankruptcies usually signal a business transfer.

Sales of corporate stock, corporate name changes, transfers of employees or payroll and sales of assets in the normal course of business are not business transfers.

Colleges recognizing the benefit of small businesses and the number of people interested in starting out on their own, begin offering college classes in entrepreneurship. That’s just how 23 year old Nick Massari, director of operations for Nanina’s Gourmet Sauce got his position.

In 2005 a group of Monmouth University in West Long Branch, N.J started the company that now sells its product in 400 grocery and gourmet shops in New Jersey and New York. Their professor worked as a chef previously and brought them a recipe for a successful sauce he’d never had time to market. The team of students divided into smaller teams, covering sales and marketing, finance, information technology, research and development, and production.

The Monmouth students researched their market, created a business and then followed through their blueprint, getting the sauce on supermarket shelves. The following semester the students followed through with a course in small business management where they learned through on-the-job training to run their company day to day. Massari predicts $1 million in sales this year. Not bad for a company 3 years old.

More than 2,000 of our nations’ colleges and universities jumped on the creating entrepreneurs band wagon with offerings from one class to an entire curriculum for entrepreneurship. In return 200,000 students enrolled in these classes. Small businesses generate 75% of all new jobs created in the USA.

Kansas City’s Kauffman Foundation is spending $50 million of money left by the great Kansas City entrepreneur and owner of the Royals Baseball team, Ewing Kauffman. The Foundation’s vice president, Marjorie Smelstor, insists that entrepreneurship can be taught, but the method of teaching must go beyond teaching theory. Former class learning coupled with a hands-on approach successfully teaches entrepreneurial skills. Smelstor also extols the importance of a well rounded, strong liberal arts education.

Active or retired business owners make the best teachers. These teachers teach students to get on the bicycle and ride rather than discussing the theoretical points on how bicycles can be ridden by humans.

Franchises offer entrepreneurs the ability of stepping into a business with national or regional recognition. In some cases, the franchisor does national or regional advertisement. Individual franchises usually still need local advertising campaigns for marketing their specific location.

The following list provides important considerations when choosing the franchise right for you and your location:

Franchise Market Appeal

•  Choose a franchise you like; the product must appeal to you. Pride in your business makes a better salesperson.
•  Study your location and what appeals to the specific market. A successful franchise in one location provides no guarantee as to its successfulness in another market.
• At the same time, ensure that the competition for the product or service hasn’t over saturated the market in your location.

Research Franchise Offerings

• Not all franchises are clones. Each franchise sets their rules, prices and procedures. Make sure the requirements of the franchise meet your business concept and the way you like working.
• Match your skills and interests to available franchises. Don’t try to put a square peg in a round hole. Databases exist where you plug in your criteria for a business and you receive a list of franchises meeting your criteria.
• Some franchises offer only seasonal concepts – if you want or need to work full time year around, steer clear of these.

Comparative Research

• Compare various franchises with each other. Compare what you get versus the price you pay and what’s included with the offering. Some franchises offer training and ongoing support, others offer less.
• Compare earnings, costs of maintaining the franchise. Have your accountant review this information.
• Do your own income and cost projections with your accountant for your location.
• Compare contractual provisions such as terminations. Turn these over to your attorney for review.
• Talk to existing owners of the franchises on your short list and ask about the good, the bad and the ugly. Find out if the franchisor meets their obligations.