Lead Thinking The Business of Software Development

An Entrepreneur’s Top 5 Practical Books

I find that a lot of business books I’ve read are far too high level to be useful, and although they might give you some indication of what’s to come ahead, they provide little advice on how to tackle problems or any nuances you should take into account.

There’s a reason why few practical business books have been written, and that’s because it’s a hard balancing keeping the content applicable and useful, without making it too case specific.

However, there are some out there. The following are list of books that fulfill the criteria of being both practical and useful. If you’ve got any favorites of your own, please suggest them in the comments.

1. The Entrepreneur’s Guide to Business Law

As an entrepreneur, you have to be pretty clued up on the legal side of things, to try and prevent making any fatal mistakes. In my opinion, this is one of the most valuable books in an entrepreneur’s arsenal and covers topics such as incorporation, intellectual property, venture capital and contract law.

Creating a LLC – Getting your EIN

What is an EIN?

EIN stands for “Employer Identification Number”, but in reality it’s deals with a lot more than just employees.

It’s basically your companies identification number with the IRS.

Why do I need one?

You’ll need one to do almost anything with your company. Banks will require one, as will Merchant/Gateway accounts.

How to get an EIN if I’m a US Citizen

Although your incorporation company might offer to get you one (for a fee), you don’t need to go down that route.
Instead, you can apply free online at the IRS website.

How to get an EIN if I’m not a US Citizen

This is a bit more tricky as the online service only accepts US citizens.

You’ll need an ITIN (Individual Taxpayer Identification Number) which is a tax processing number for people without Social Security numbers. You should be able to get one in your countries US Embassy (check their website first). Take two forms of photo id (passport & driving license) and your incorporation documents. Once you’ve got an ITIN you can apply online for your EIN.

If you’re in a hurry, you can pay your incorporation company to get one for you. However, you’ll need to apply for an ITIN at some point, as you’ll need it when you file your personal tax return.

Creating a LLC – Operating Agreement

In my last two posts, I explained corporation types and the initial incorporation.
However, once your company is incorporated, you need to get the members to sign the Operating Agreement.

I’ve “open sourced” our Operating Agreement (links at the end of the article).

The Operating Agreement is a legally binding contract between the members of the LLC. Although many states do not require LLCs to have an Operating Agreement, you should see it as a legal requirement (even if there’s only one member).

An Operating Agreement will give you credibility in court, and it’ll be harder to pierce the corporate veil (i.e. sue you personally) if you’ve got one in place. So essentially you need a Operating Agreement to protect your Limited Liability. It’s also for this reason that if you’re a single member LLC, it’s even more imperative that have a Operating Agreement as it may be that much harder to protect your Limited Liability.

Practically, an Operating Agreement is designed to get all the Members on the same page, and try to prevent disagreements later on down the line. If there are any problems, you and the courts will look to the Operating Agreement for guidance.

Incorporating a LLC

So, following on from my last post on startups, here I explain the process of incorporating a LLC.

Which state?

First, you need to decide where to incorporate. Each state has different laws – and some are more suitable for incorporation than others.

Delaware is a popular choice because its a favorable and business friendly environment. Some 571,000 businesses have been setup there, including 58% of the Fortune 500.

Delaware imposes no state income tax on a business that does not operate within the state. That usually means if you don’t have a physical presence within the state, you’re exempt from that tax and will only have to pay the LLC franchise tax.

Delaware is also famous for it’s established body of laws and Chancery Court, which are unique to the state.

Anyone can set up a business in Delaware, without ever visiting the state. In addition one person can hold all the positions and be the sole owner of the business – perfect for Micro ISVs.

There are other popular states for incorporation, such as Nevada. It’s worth doing a bit of research to find out which one’s best for you.

Choosing a name

You’ll also need to decide upon a company name. This will be need to be unique inside the state – most incorporation services will do a free name check. This is also the time to think about a domain name too.

DIY or incorporation service?

You can file the incorporation forms yourself, paying a minimal filing fee. However I recommend getting a firm to do it for you, especially if it’s your first time, or you’re outside the US. There’s a good blog post here on the tradeoffs to both approaches.

Most firms will also offer to be your registered agent – though only if you incorporate through them. A registered agent is someone who is in charge of receiving court documents and forwarding them to you. Delaware law requires you to have one, but it’ll only set you back $50 a year.

I really recommend Harvard Business Services Inc for incorporation. Their cost was reasonable, and customer service was great.

Harvard’s basic international package is currently $450. Personally I don’t think it’s worth paying for the standard or premium packages – you can purchase a ‘corporate kit’ separately for much less.

When you incorporate with them, you’ll need the names of the Managing Members. These names aren’t registered with the Delaware state, but are for the documents showing the incorporating office has signed over control to you. Basically the system is designed to protect your anonymity. If  you assign yourself as a Managing Member of the LLC, you can assign others later without having to inform the state.

The other cost you’ll have is the annual Delaware LLC franchise tax. This is a flat fee of $250, due on June 1st. If your incorporating towards the end of the year, it might be worth waiting till January so you don’t need to pay that year’s franchise tax.

Next steps

Once you’ve incorporated, the next step is for all the members to sign the Operating Agreement – I’ll tackle this in the next post.

Creating a Startup – Choosing a Company Type

This is the first in a series of articles I’m writing on company formation. The series will be from the perspective of a non-resident alien to the US and will encompass:

1. Choosing a Company Type
2. Incorporating a LLC
3. Obtaining an LLC EIN
4. Obtaining an LLC Bank Account
5. Obtaining a Merchant Account

When you go through the company incorporation process, you need to decide what type of company you need.

All have their pros and cons, and what type is best for you really depends on your short to medium term objectives.

I’ve outlined the types below, and the general scenarios in which they’d be applicable.