Python for Entrepreneurs Transcripts
Chapter: Making money (credit cards and businesses)
Lecture: Business structures
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0:01
Now, often people ask me about whether they should form a company, some kind of company really early in this process,
0:12
and sometimes they will ask me what type of company that should be, should it be an LLC, should it be an S corp what should it be.
0:19
I would say until you have actually put something out there, until you actually have a thing you want to publish,
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it's probably not really worth creating a company, I mean, I guess you could be considering getting funding before you launch,
0:31
in which case, have a company, you could be considering patenting something probably worth having a company, things like that,
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but neither of those are probably the most common case and so until you are ready to launch something I wouldn't really worry about it,
0:44
but these things don't happen in one day, or right away, it could be a few days to get this finalized,
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so don't wait until the day before you are ready to launch with all the final loose ends and the excitement of actually doing a launch to
0:57
wait through this paperwork, but it's not something you got to start with for sure. So the two primary business structures in the US are
1:04
what are called a Limited Liability Company versus a Corporation. Now, according to Wikipedia, in US this is the private limited company,
1:13
this is a company that designs basically pass through taxation with the limited liability of a corporation, so what does that mean?
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First of all, let me say I am not a lawyer, nothing in this course is legal advice, but I do have an LLC and here is my understanding.
1:30
With LLC the income from this business, especially if it's a sole proprietorship
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is basically treated as just consulting income, or self employment income. Whether you make ten dollars, ten thousand dollars, or ten million dollars,
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it's taxed as if you just personally had a salary of ten million dollars, with the side caveat that you have a little bit extra, well,
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you have extra tax to pay through self employment tax. So, when you are getting into this, if you are making
2:01
a significant amount of money through here, be sure to get an accountant and talk to them and get a consultation about taxes.
2:06
LLCs are easy to set up, they have less reporting, they have less formality to them,
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as far as income goes, it's just like you earned income that your business had, and you can get a partnership which would mean like you say
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you have three people they each have a third, you would just receive one third of the income
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and you would have to disclaim that minus expenses on your tax report.
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This is quite common, you might think that this is only for dinky little companies not major companies like real companies don't operate as LLCs
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only like little mom-and-pop dry cleaner type shops do, right, in fact there is some really large companies like Fidellity,
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The trading and investment company is in LLC, Enterprise, Albertsons, the large United States especially in the West Coast, very large grocery store,
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one of the largest grocery stores on the West Coast in the US is an LLC. So these can be very large, or they can be very small.
3:10
The opposite of an LLC would be a corporation, and S corp, right, so this is more about how you treat the income and taxation
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than it is about the protection, because done correctly, the LLC should give you the same amount of protection as the corporation.
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But here you can set it up so that you don't get taxed twice, the corporation pays taxes and the shareholders
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also don't have to pay the exact same taxes, so the accounting is much more complicated there is some prescribed ways in which you have to operate
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and over site that you have to set up, thing like that, but S corp is also a very common option.
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You can transition from one to the other, I know that it's possible, I've never tried to do it, I don't know how hard it is to do, and I don't know,
4:00
to me it just doesn't seem like a huge deal which one of these passes to go down,
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right, either there is a good chance that your business is going to have a hard time taking off, because most businesses do, unfortunately,
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so then the structure doesn't really matter that much, and if it does take off,
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you'll have lots of money and lots of interest on getting this done just right, but do set up some kind of legal protection
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because you don't want something you do to come back and bite you personally with your house, with your family, anything like that.