Python for Entrepreneurs Transcripts
Chapter: Making money (credit cards and businesses)
Lecture: Business structures
0:01 Now, often people ask me about whether they should form a company,
0:08 some kind of company really early in this process,
0:11 and sometimes they will ask me what type of company that should be,
0:15 should it be an LLC, should it be an S corp what should it be.
0:18 I would say until you have actually put something out there,
0:21 until you actually have a thing you want to publish,
0:24 it's probably not really worth creating a company, I mean,
0:27 I guess you could be considering getting funding before you launch,
0:30 in which case, have a company, you could be considering patenting something
0:34 probably worth having a company, things like that,
0:37 but neither of those are probably the most common case
0:40 and so until you are ready to launch something I wouldn't really worry about it,
0:43 but these things don't happen in one day, or right away,
0:47 it could be a few days to get this finalized,
0:50 so don't wait until the day before you are ready to launch
0:52 with all the final loose ends and the excitement of actually doing a launch to
0:56 wait through this paperwork, but it's not something you got to start with for sure.
1:00 So the two primary business structures in the US are
1:03 what are called a Limited Liability Company versus a Corporation.
1:07 Now, according to Wikipedia, in US this is the private limited company,
1:12 this is a company that designs basically pass through taxation
1:17 with the limited liability of a corporation, so what does that mean?
1:21 First of all, let me say I am not a lawyer, nothing in this course is legal advice,
1:26 but I do have an LLC and here is my understanding.
1:29 With LLC the income from this business, especially if it's a sole proprietorship
1:33 is basically treated as just consulting income, or self employment income.
1:39 Whether you make ten dollars, ten thousand dollars, or ten million dollars,
1:44 it's taxed as if you just personally had a salary of ten million dollars,
1:49 with the side caveat that you have a little bit extra, well,
1:53 you have extra tax to pay through self employment tax.
1:57 So, when you are getting into this, if you are making
2:00 a significant amount of money through here,
2:02 be sure to get an accountant and talk to them and get a consultation about taxes.
2:05 LLCs are easy to set up, they have less reporting, they have less formality to them,
2:11 as far as income goes, it's just like you earned income that your business had,
2:15 and you can get a partnership which would mean like you say
2:18 you have three people they each have a third,
2:21 you would just receive one third of the income
2:24 and you would have to disclaim that minus expenses on your tax report.
2:28 This is quite common, you might think that this is only for dinky little companies
2:34 not major companies like real companies don't operate as LLCs
2:41 only like little mom-and-pop dry cleaner type shops do, right,
2:45 in fact there is some really large companies like Fidellity,
2:49 The trading and investment company is in LLC, Enterprise,
2:53 Albertsons, the large United States especially in the West Coast, very large grocery store,
3:02 one of the largest grocery stores on the West Coast in the US is an LLC.
3:06 So these can be very large, or they can be very small.
3:09 The opposite of an LLC would be a corporation, and S corp, right,
3:15 so this is more about how you treat the income and taxation
3:20 than it is about the protection, because done correctly,
3:24 the LLC should give you the same amount of protection as the corporation.
3:27 But here you can set it up so that you don't get taxed twice,
3:31 the corporation pays taxes and the shareholders
3:35 also don't have to pay the exact same taxes,
3:37 so the accounting is much more complicated there is some prescribed ways
3:42 in which you have to operate
3:45 and over site that you have to set up, thing like that,
3:48 but S corp is also a very common option.
3:51 You can transition from one to the other, I know that it's possible,
3:55 I've never tried to do it, I don't know how hard it is to do, and I don't know,
3:59 to me it just doesn't seem like a huge deal which one of these passes to go down,
4:04 right, either there is a good chance that your business is going to have a hard time taking off,
4:08 because most businesses do, unfortunately,
4:11 so then the structure doesn't really matter that much, and if it does take off,
4:14 you'll have lots of money and lots of interest on getting this done just right,
4:19 but do set up some kind of legal protection
4:22 because you don't want something you do to come back and bite you personally
4:26 with your house, with your family, anything like that.