Entrepreneurship

What is entrepreneurship?

At its most basic level, entrepreneurship refers to an individual or a small group of partners who strike out on an original path to create a new business. An aspiring entrepreneur actively seeks a particular business venture and it is the entrepreneur who assumes the greatest amount of risk associated with the project. As such, this person also stands to benefit most if the project is a success.

Entrepreneurial pursuits often involve innovation. Large enterprises may seek to emulate this element by cultivating what’s known as “intrapreneurship.” Employees are encouraged to think like entrepreneurs, cultivating an original perspective that may result in a new idea for the company. These workers may be given extra latitude, but the enterprise still holds authority over the project and absorbs any risk associated with it. Entrepreneurs benefit every sector, from large corporations to small businesses.

A Entrepreneurship corporation is a legal entity that’s separate from its owners for legal and tax purposes. Most corporations have stock and shareholders.

Starting a corporation can be more costly and time-consuming than other business types, but it will ensure that you’re not personally liable for any legal problems associated with the business.

Characteristics of an entrepreneur

The entrepreneurial mindset combines several Amazing different skills that require careful development for the successful achievement of a business idea. For example, an entrepreneur must be able to balance an understanding of how business works — including from a financial and operational perspective — with a drive for innovation. Entrepreneurship means understanding when you have an opening in the marketplace that no other provider is meeting and having the business sense to know how to go after this new opportunity at the right time.

A successful entrepreneur will possess many abilities and characteristics, including the ability to be:

• Curious
• Flexible and adaptable
• Persistent
• Passionate 
• Willing to learn
• A visionary 
• Motivated

Key Takeaways

• Corporations protect owners from the business’s liabilities.
• Starting a corporation involves naming a board of directors, deciding what type of shares to issue, getting a certificate of incorporation, and filing the incorporation.
• The main disadvantages of forming a corporation are the paperwork and expense involved.
• What is the difference between a startup and a small business?
• The term startup refers to a company in the first stages of operations. Startups are founded by one or more entrepreneurs who want to develop a product or service for which they believe there is demand and expect to grow the business. The vision for the business is usually different from a small business owner’s.
• For example, a food service worker who’s interested in entrepreneurship might choose to go into business for themselves, opening up a new restaurant. Eventually, this venture may succeed and grow to the point where opening up a second location or franchising the brand could be viable options. However, this does not necessarily mean that the restaurant is a startup, especially if the founder’s initial goal wasn’t to significantly expand the business.
• A better example of a startup entrepreneur might be a food service worker who has an original idea about how to transform restaurant operations on a larger scale. This person might be interested in creating a new technological solution, reimagining distribution and logistics, or something else. The key difference here is that the startup is small in the beginning, but its success relies on using an innovative idea to respond to a large-scale opportunity. Right away, many startups, companies that are just beginning operations, have big ambitions. 
• From idea to startup
• To visualize the journey of a startup entrepreneur, consider Kevin Plank’s story. As the founder of Under Armour his company, which is now known for its moisture-wicking clothing, a revolutionary idea at the time, took Plank into about $40,000 of credit card debt. His idea didn’t catch on until he made his first sale to Georgia Tech and the appeal of his product took off.
• Plank’s entrepreneurial spirit took an idea based on the dryness of his compression shorts and turned it into a highly visible and wildly popular company through persistence, vision, motivation, and a determined sales strategy.
• Obstacles to successful entrepreneurship
• A smart venture and the right opportunity don’t guarantee success in the world of entrepreneurship. A rising entrepreneur may face many hurdles on the road to founding a business.
• Recent research from the Ewing Marion Kauffman Foundation reported that the leading concern among “aspiring entrepreneurs” was difficulty acquiring funds to launch or expand the organization. Finding the proper mentorship was another major obstacle.

Steps for Starting a Corporation 

The seven basic steps to incorporation are as follows:

Choose a Corporate Name and Address  

Perform a corporate name search to ensure the name is unique so you don’t have problems in the future. You’ll file your business name as an entity at the state level, and can register it as a trademark at the federal level. Both actions help to protect your business name in the future.1

Select a State To Incorporate In  

You don’t have to incorporate in your home state, although it can be easier because you’ll only have to deal with one set of state tax rules and compliance regulations.2 But there are a number of factors to consider when choosing the location, including the cost to incorporate, tax rates, and corporate laws. 

Choose a Corporation Type  

Determine the best type of corporation for your business: C-corporation or S-corporation. 

C corp: Shareholders are protected from the corporation’s liabilities. But the business is taxed on its profits, and shareholders are taxed on distributions such as profit-sharing or dividends. 

S corp: Requires registration with the IRS and can help you avoid some of the double taxation found with a C corp. You pay taxes as if you were a sole proprietor or partner. 

Research the advantages of each and consult with your advisors before making a choice.

Name Your Company Directors  

Corporations must have a board of directors. The director positions will have to be filed within the articles of incorporation and by-laws. Check your state requirements on the number of board members that are required, as well as other regulations. 

Choose Your Share Type  

Even private corporations can offer different types of shares for shareholders. 

• Voting shares: Common shares for owners of the company; typically, one share equals one vote.
• Non-voting shares: Shareholders cannot vote, but do get the benefit of profit distributions.
• Preferred shares: These shareholders are paid distributions first and are also paid before common shareholders if the company goes bankrupt.3

Obtain Your Certificate of Incorporation  

You can get this at the corporate filing office for the state in which you incorporate. This process is usually completed with the secretary of state’s office.4

Process and File the Incorporation  

You can complete the incorporation using a lawyer or a third-party service. No matter which option you choose, you’ll need to file your incorporation with a registered agent. A registered agent is your company’s official point of contact with the state.5

Pros & Cons of Starting a Corporation 

Pros

• Reduces personal liability
• May have more tax advantages
• More financing opportunities
• Easier to valuate for a sale

Cons

• Several legal processes involved in applying
• Ongoing administrative responsibilities
• Annual filing fee required

Pros Explained 

Reduces personal liability: A corporation exists as a separate legal entity from your personal life. Any debts or lawsuits are incurred by the company, not the owner. Any business with potential for lawsuits should consult with a lawyer and consider incorporation. Incorporating will offer an added layer of protection, but it is still advisable to get business liability insurance.

May have more tax advantages: Corporations are often taxed at a lower rate and have better taxable benefits. Talk to your accountant about the tax advantages.

More financing opportunities: Financing a small business as a sole proprietorship or partnership can be difficult. A corporation can sell shares of the company and raise money easier than other business structure types.

Easier to valuate for a sale: A non-corporate business is hard to valuate properly. A business corporation value will be based on the business, not the owner, therefore making it easy to sell the company.

Cons Explained 

Several legal processes involved in applying: There are many rules and guidelines you must follow in order to successfully incorporate your business. These typically vary by state.

Ongoing administrative responsibilities: Depending on your type of corporation, you’ll likely need to file articles of incorporation and hold annual meetings with your board of directors. 

Annual filing fee required: In addition to an initial filing fee, you’ll likely need to pay an annual filing fee to your state.

Note

The decision to incorporate is an important one. Work with your business advisor, lawyer, and accountant to determine whether it’s right for you and your business. They can also help guide you through the process.

Frequently Asked Questions (FAQs)