Adopt a systematic approach for answering this question.
Start the business selection process by looking at your interests – hobbies, leisure activities and other interests. Make a list of these and check whether any of these could be the foundation for a business.
Next, look at the items bought by buyers (like government departments and large corporations), imports and exports. Do you think you have some advantage to better organize supply any of these products ?
Finally, look at the new products and processes developed by technology research laboratories. Can you see a market for one of these?
You can also go around shopping complexes and trade fairs, or browse through technology or business publications, looking for some product to manufacture.
Now consolidate all the lists of business possibilities that you have made. You have to go through the consolidated list evaluating each idea against the following criteria:
- Do you have the technical know-how about the production process, equipment requirements and other inputs needed to make the product? Do you know where all the requirements could be found? If not, could you organize the know-how and other information?
- Do you know how the product is marketed and delivered to the customers? Promotional methods, distribution network, and other industry practices? Could you go out and create the needed marketing setup?
you competesuccessfully? Is there an excess demand that you can supply? Have youidentified a niche segment of the market that is under-served now? Do youhave a competitive advantage like a cheaper price or better quality? Can you convince the customers about these advantages?
you havethe financial resources to organize both the production and marketing setup? And sufficient spare time to build up the business? A new business mightrequire long hours – much longer than in your present employment.
Work at it until only one product or product line is left. Take your time, but do it painstakingly to find the business that is just right for you.
You are Mary Businessperson. What kind of business organization could you set up to do a small business?
You can do business as “Mary Businessperson”, (say) Caterer. No need to register your business name. The only registration needed could be registering your business with your local council. Just go and meet the concerned person and complete any forms (and pay the fees). Certain businesses (including catering, most likely) might have to register with the health or other department. Get the details from the person you meet at the local council.
When you start making profits, tax people would of course get interested in you and further registrations and formalities might become necessary. Until then just focus on your business.
If you so much as add a word or two to your name, however, business name registration would become necessary. “Mary Businessperson & Company” for example. You’d have to check that nobody else is doing business in the same name. You’d also have to tell the authorities such things as whether it is just Mary Businessperson or whether there is indeed some company.
That brings us to the topic of partnership.
You can persuade Joanna Marketperson, your friend, to join you in the business. While you, Mary Businessperson, will do the actual catering, Joanna will do the work of getting orders. She has excellent contacts among, say, the HR managers of companies nearby that need catering services for their canteens. The two of you could build an excellent business together. And Joanna will also bring in some money to buy needed equipment.
From registration point of view, however, things get a little complicated. Not only the name of the business but also the partnership itself would have to be registered. And to avoid unnecessary disputes, it would also be best to meet a partnership lawyer and set down exactly how the partnership would be run. Who will do what, how much money each will invest, how the profits (or, horror of horrors, losses) would be shared and how the dues would be settled in case one of you dies or retires from the business.
Both the above forms of doing business, sole trader and partnership, have a big problem. Even if you keep business and personal accounts quite separate, your creditors can get at your personal assets if the business assets prove insufficient to meet their claims.
And in the case of partnership, you might be liable for any claims arising from Tim’s business actions in case he becomes insolvent.
That’s going too far, you might think. So what do you do. Don’t do business at all?
Well, there’s an option. You could incorporate a company. Unless you are a company lawyer, the very word incoporation might cause you get tense. And you’d be right too. Company incorporation is no simple matter. So many papers and formalities – not only to set it up but also year after year so long as your company is in existence.
So why go to all the trouble?
The answer, and a resounding one at that, is that your personal assets are no more at risk (unless you knowingly risk them). The company is a separate legal entity that has to take care of its own liabilities. If it can’t meet the liabilities, the creditors lose. Unless you have given a personal guarantee or security.
There is one thing however. If you had agreed to take a thousand shares at $1 per share, and has paid only 75 cents per share (say by bringing in only $750), you’d have to pay up the unpaid amount (the remaining $250). Beyond that, your personal property is safe.
There are also taxation issues. As a sole trader or partner, your business income would be clubbed with your other income and that total would be taxed at the rates applicable to that total.
The company, on the other hand, pays its own tax. If it does not pay out a dividend, you would not have to pay tax on the business profits.
There is also the credibility and respectability that a company form would create for the business. J S Caterers, Inc. sounds so much more impressive. And might get the catering contracts from those big corporations.
So the option is up to you. Better consult a tax lawyer, however.