The HBS Blog offers insight on Delaware corporations and LLCs as well as information about entrepreneurship, start-ups and general business topics.
The U.S Chamber's Institute for Legal Reform just released its survey results for this year and Delaware is ranked #1 for the seventh year in a row as the state with the best legal climate. This is important because your business will benefit if you are incorporated in Delaware; the state is ranked #1 for the impartiality and competence of its judges and the fairness of its juries. Below is an excerpt:
The U.S. Chamber’s Institute for Legal Reform (ILR) today released its survey ranking the states with the best and worst legal climates in the country. According to the survey, the states with the worst legal climates are California (46th), Alabama (47th), Mississippi (48th), Louisiana (49th), and West Virginia (50th). The states with the best legal climates are Delaware (1st), North Dakota (2nd), Nebraska (3rd), Indiana (4th), and Iowa (5th).
The survey also shows that a state’s legal climate affects how and where a company does business and creates jobs. Two-thirds, or 67%, of the 1,482 corporate lawyers and executives contacted say a state’s lawsuit environment is likely to impact important business decisions at their company, such as where to locate or expand their businesses. That is up 10% from just three years ago.
Here is the full detailed Institute of Legal Reform report.
I recently got an iPhone and am addicted to checking out the app store for the latest and greatest. I have been thinking a lot about how businesses go about creating an iPhone app for their business. Check out this great article on DesignSponge with a clear explanation of the process. Below is an excerpt:
First things first—come up with a solid idea.
It’s probably best to do a bit of research to find out what Apple will and will not allow in the App Store. Then do some keyword searching—with 150,000+ apps out there, chances are someone else already had your great idea. That being said, if there’s a chance for improvement it could be worth a try.
When we created the Virtual Zippo Lighter App at Moderati, we had the idea long before the iPhone even existed. We did a “rock lighter” wallpaper years prior, and had been in the works with licensing images from Zippo. When we were pitching the app idea to Zippo a couple other lighter apps had just launched. My boss said to me, the thing that’s going to make this one the best is the design. The strategic licensing effort on the part of the marketing department also certainly had something to do with the success of the app.
Okay, so you have a great idea, then what?
Just like any other multi-media design project, you’re going to want to start by making a list of features your app will have. Chances are your list might get a bit long, so remember that “less is more” can be applied to new design mediums. Group features into clusters that make sense, and remove things that don’t really enhance the user experience or add to the final product (just because the iPhone can do something, doesn’t mean your app has to).
With your features listed, next you’ll want to mock up your product and do a bit of UI design.
Taking all the features into consideration, you’ll have to figure out an elegant way for users to actually use the app. Either by sketching on paper or creating simple shapes on the computer, think about how it will function, what users will see first, and what users will click on most. Remember that people are impatient, so it’s best to minimize the number of clicks. When thinking about elements on a page, and the order of things, keep in mind that instinct and learned behavior play a part for the user (for example, “forward” is usually on the right, and “back” is usually on the left).
Then, it’s page-flow time. When setting up your design and how everything will be connected, instead of thinking of it as a website (open-ended, scrollable, kind of limit-less), think of it more like a DVD menu interface (limited set of features that get straight to the point). Unlike a website, your app isn’t going to have breadcrumbs or a URL at the top helping you find your way back, so be sure the user can figure out where they are at all times, with shortcuts to important features. Adding a “Home” button is much, much better than forcing the user to click “back” a good number of times (if it were me, at that point I’d just choose to hit “End”).
At Harvard Business Services, Inc., we know that when you start your own business, it can be confusing to know which corporate structure is best for you and your business. The article "The Skinny on Sole Proprietorship" from Entrepreneur.com does a fantastic job of clarifying some of the confusion regarding a Sole Proprietorship and the benefits of the S-Corporation. Below is an excerpt:
Though there are tax benefits to being a sole proprietor (no employees = no payroll tax--huzzah!), you are personally liable if a legal situation arises. This is especially important for those providing services like construction and financial consulting.
"If you are dealing with individuals' money that is typically invested in the stock market, this tends to be a very sensitive [and potentially litigious] issue," says Robert Fuest, principal of LandorFuest Capital Management. "You must understand all of your risks."
Those risks go beyond just upsetting a client. For instance, a default on a debt or other payment can result in a creditor legally coming after your personal property and assets or other possessions.
Fuest advises new business owners to look at their entire financial situation and take into account any plans to grow and include partners and employees. "The LLC offers more flexibility when it comes to operating and more personal protection," says Fuest.
Once your sole proprietorship is up and running, Fischer recommends treating your business like a business, something that those who freelance from a home office would do well to remember. "Be professional at all times and make time for things like marketing and networking."
This includes everything from having professional-looking materials (business cards, letterhead, invoices, etc.), to answering the phone properly and dressing appropriately. Deshayes says this can go a long way toward impressing clients and making them comfortable giving you work.
When purchasing these materials, Deshayes says it's important to keep personal money and business funds separate. "Keep your books clean and avoid comingling funds, which could open you up to legal liability."
Though there is no mandatory income threshold, Estill uses a guideline of around $50,000 per year gross as a starting point to consider converting a sole proprietorship to an S corporation (assuming they are not at risk for liabilities--then, forming an LLC would make more sense).
Estill says the primary tax benefit of an S corporation is that the owner controls the payment of employment taxes (via a declaration of salaries or wages). In a sole proprietorship, all net profits are taxed at the self-employment rate, which is currently 15.3 percent on the first $106,800 of net business income.
That rate remains the same for either structure, but the business owner can save some money with the S corporation. They may draw a salary (let's say half of what they'd declare as net income on a sole proprietorship) and pay the 15.3 percent on that. "The rest of the income flows to your personal tax return on a Schedule K-1, which ends up being subject only to income taxes," observes Deshayes.
There are costs associated with setting up an S corporation, including filing fees and corporate taxes, but Estill says, "The S corporation can be set up in any of the 50 states with only one shareholder, so it is an ideal business entity for a single-person venture."
Fuest advises looking before you leap, no matter what the structure. "The laws always change, and depending on the size of the business, you could be at an advantage one year and a disadvantage the next. It really comes down to your personal plans for growth."
Last time I took a swipe at the filler phrase “y’know,” which has invaded so many interviews that for some it’s become a reflex, like breathing when answering a question, a colleague of mine reminded me that a couple of years ago we began encountering another useless time-buying verbal gimmick, the word “so.” It began popping up in media training sessions with scientists and engineers. Some of them began their answers to our practice interview questions with, “So...” as in this exchange:
Question: “How will this experiment expand our knowledge of the universe?”
Answer: “So, what we are going to study is.....”
It was so pervasive that a few science and engineering media training participants began every single answer with the word “so.” They were unaware they were doing it until we played back the interviews for our critiques. One confounded scientist, for whom the critique was a revelation, asked, “Why am I doing that all the time?” At the time I couldn’t answer his question, but now I think I know the answer. Scientists, by inclination and training, prefer to build to a conclusion. But they know that laymen want a conclusion first, followed by the supporting data.
In fact, during media training sessions I drive home that message using the slogan, “Key Point Up Front.” In other words, we are asking people to do something counterintuitive: to start with what would normally be the end of an answer. Normally, when our scientist is building his argument with peers, he lays out his evidence and when he is going to to deliver his conclusion uses flags the fact with the word “so.” Actually, “so,” used this way is layman speak for “ergo,” which in its original Latin meant “because of,” but was adopted as a synonym for “therefore” in 14th century English. Now when urged to begin with the conclusion, many scientists and engineers instinctively start with “so,” even though they haven’t presented the facts leading up to the conclusion. At a recent gathering I attended, there were a lot of scientists on panels and laymen in the audience and almost every scientist present began many answers with the word, “So....”
Why is this relevant to the business community? Well, lately I’ve noticed the answer-starting “so” creeping into media interviews with businessmen. Perhaps they picked up the habit listening to Nobel prize-winning scientists using the word. Perhaps there is a “so” virus out there. Whatever the reason, I am hearing more and more “so” answers from more sectors of the economy.
Whether you have talking about dark energy or monetary policy or business opportunities in third world countries, starting answer with “so,” is distracting and annoying. First of all, the “so” is totally misplaced and somewhat baffling to the listener, since the basis of the conclusion hasn’t been given. Second, it becomes a cliche like “y’know” and can lead to such overuse that it becomes a distraction -- just like “y’know.”
As I pointed out earlier, a lot of perpetrators of “so” responses were totally unaware they were committing the offense. So (sorry, couldn’t resist) how do you know you’ve fallen into the trap and what do you do to get out of it?
I know of only two ways of catching yourself deploying the inappropriate “so.” Ask colleagues to listen for it -- a less than reliable solution -- or record yourself in conversations and practice interviews and play back the tapes listening for “sos.” If you are a so-er what is the remedy? Incorporate the sense of the question in your answer. If you are rephrasing the elements of the question, it’s virtually impossible to begin an answer with “so.” Back to the example I used earlier:
Question: “How will this experiment expand our knowledge of the universe?”
Answer: “This experiment will expand our knowledge of the universe by studying.....”
What about my mandate for getting your key point up front? Restating the sense of the question doesn’t push the key point all that far back in your answer, AND, importantly, it makes your answer totally self-contained -- something the media love. If they can use your answer without their question, they are a giant leap toward a good soundbite or pull quote.
One organization that every entrepreneur should know about is SCORE, a partner of the U.S. Small Business Administration (SBA). Since 1964, SCORE has been known as the “Counselors of America’s Small Business Owners.” SCORE is a non-profit association with a national network of 12,400 volunteers. The volunteers are successful entrepreneurs and executives who want to give back by sharing their expert business advice with you. There are local chapters throughout the nation that offer workshops and one-on-one business advising sessions. No matter what stage your business is in, they are able to help. There are no business questions too simple or complex for SCORE counselors. So the next time you need business advice, ask SCORE. We love that small business success across America is SCORE's mission!