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The HBS Blog offers insight on Delaware corporations and LLCs as well as information about entrepreneurship, start-ups and general business topics.

There’s Still Time to Become a S-Corp in 2010
By Paul Sponaugle Friday, February 26, 2010

If you’ve been following this blog or have ever incorporated a business then you probably already know about the S-Corporation or S-Corp, and the tremendous pass-through tax benefits associated with it.  If not, check out Background on S-Corporations for a quick crash course.  Though the concept is easy grasp, many fail to understand how a business entity becomes an S-Corp.

The term S-Corp is really just a nickname for a corporation or an LLC that has qualified and has elected Subchapter S tax status from the IRS.  But in order to get the status YOU HAVE TO APPLY FOR IT! Too often we see individuals form their businesses with the intentions of becoming S-Corps but never submit the application to the IRS.  Then come tax time, they scramble to complete the process only to find out it is too late……….for last tax year, at least.

Making the Subchapter S election for a corporation or other qualifying entity is done by filing form 2553 no more than two months and 15 days after the beginning of the year the election is to take effect.  Basically, this makes for two situations.

Situation 1: If a qualifying entity had a tax year prior to 2010, it has until March 15th to make the election for the 2010 tax year.

Situation 2: If the entity is new and had no tax year prior to 2010, then it has approximately 75 calendar days (more or less depending on the months) to make the election.  For example, if the entity began its tax year on January 10, then the two month period ends on March 9 and 15 days after that is March 24. It could file form 2553 no later than March 24 to be eligible for the election in 2010.

Whether you have formed a new company in 2010 or you had formed a company prior to the New Year, it is not too late to become an S-Corp.   To find out how the professionals at Harvard Business Services, Inc. can help make your entity an S-Corp, call 800-345-2677.

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How to Grow a Small Business
By Carleigh Lowe Friday, February 12, 2010

Poder360.com has a fantastic article written by Elsie Morales on How to Grow a Small Business. Below is an excerpt:

The evidence indicates that, while the corporate world continues to struggle, Americans are having more and more success finding their own solutions. According to the Kauffman Foundation’s most recent edition of their “Index of Entrepreneurial Activity,” new business formation was already on the increase in 2008, with the trend expected to continue in 2009. In fact, according to recently released data from the Job Market Index published by Chicago-based outplacement consultancy, Challenger, Gray & Christmas, the number of job seekers starting up their own businesses hit a four-year high in 2009. Enrollment in entrepreneurship courses has also risen in business schools across the country.

The percentage of unemployed people becoming entrepreneurs soared 69 percent to 8.6 percent last year, from a record low of 5.1 percent in 2008, according to Challenger. That’s close to the 2002 record level of jobless becoming self-employed. “Rather than endure several more months of unemployment as employers slowly move toward renewed hiring, many job seekers are opting to exit the labor pool and start their own firms,” the consultancy’s chief executive, John A. Challenger, said in a statement. “The start-up rate might have been even higher if banks had loosened their lending standards.”

The biggest gains in the ranks of the self-employed jobless came in the more experienced 55-and-older age bracket, according to Challenger. Some 93,000 people ages 55-64 joined the ranks of entrepreneurs in 2009, while a stunning 213,000 people ages 65 also struck out on their own. The younger generations were less enthused. The number of job hunters ages 35-44 who started their own businesses dropped by 70,000, while the 16-19 age bracket dropped 38.8 percent.

“Entrepreneurship used to be thought of as a young person’s endeavor, as it requires a significant amount of energy and drive,” Challenger found. “In fact, seasoned professionals have a decided advantage over their younger counterparts.”

In order to satiate the entrepreneurial spirit of our readers, this month PODER brings you an interview with Raffi Amit, a professor of management at the Wharton School of Business, and his insights on what every entrepreneur should know before taking the leap. Also, once you jump into the market, you’ll find some help from our accompanying 10 suggestions to improve business on the cheap.

A key question that all would-be entrepreneurs face is finding the business opportunity that is right for them. Should the new startup focus on introducing a new product or service based on an unmet need? Should the venture select an existing product or service from one market and offer it in another where it may not be available? Or should the firm bank on a tried and tested formula that has worked elsewhere, such as a franchise operation?

Raffi Amit, a professor of management at the Wharton School of Business, discusses these questions and more in a conversation with Knowledge@Wharton, the school’s online business journal. In the process, Amit offers insights into how entrepreneurs can identify new business opportunities and evaluate their potential and risks.

 
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The Entrepreneurial Island
By Carleigh Lowe Wednesday, February 10, 2010

I stumbled across this post at smallbizbee.com, I think it has some great tips on how to stay connected to entrepreneurial communities. Below is an excerpt:

Running your own business can be a lonely affair at times, almost like being on your own island.

Sure you’re surrounded by employees, vendors, and hopefully lots and lots of customers but often it can feel like you are really the only one who understands the struggles and the triumphs.

It’s as if everyone you come in contact with is on just a slightly different level than you are, and the weight of realizing you are the one that cares the most about your business can leave you feeling isolated.

 

Read the full post here: http://smallbizbee.com/index/2009/03/06/8-ways-to-connect-and-get-off-the-entrepreneurial-island/

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Job Seekers Start Their Own Businesses
By Carleigh Lowe Tuesday, February 9, 2010

Did you know that 8.6 percent of all job seekers in 2009 started their own business?! Check out this interesting article from the New York Times, below is an excerpt:

Last year, more laid-off managers and executives grew tired of waiting for human resources departments to call them back. They took matters into their own hands by starting companies.

Challenger, Gray & Christmas, the outplacement firm, regularly keeps track of 3,000 high-level job seekers in a range of industries. Last year, 8.6 percent of these decided to take the start-up route, compared with 5.1 percent in 2008.

The biggest surge was in the third quarter. The hope is that this momentum “will carry into 2010, since new business development is considered critical to a sustainable recovery,” Challenger stated.

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Delaware LLC Agreements – Get it in Writing!
By Brett Melson Thursday, February 4, 2010

The Delaware Supreme Court recently issued a decision that effectively requires all limited liability company agreements (“LLC Agreements”) for Delaware LLCs to be in writing.  The decision holds that LLC Agreements are subject to Delaware’s Statute of Frauds, which requires certain types of contracts to be in writing in order to be enforceable.  This decision appears to contradict the express language of Section 18-101 of the Delaware Limited Liability Company Act (the “Act”), which states that a limited liability company agreement may be “written, oral or implied”

Although clients typically commit an agreement to writing, some small or relatively newly formed LLCs operate pursuant to an oral understanding or implied course of dealing among the members. For example, members of an LLC may have orally agreed upon or may have simply accepted over time a certain distribution of profits and losses, or assumed that voting rights were distributed among the members in a certain way.

A member seeking to assert his or her rights in court, however, could not rely upon the oral agreement or implied understanding as an LLC Agreement governing the operations of the entity, despite the language of the Act.

This decision reinforces the importance of putting an LLC Agreement in writing as early as possible, and having all members sign the agreement. Business partners or investors in the first stages of an exciting business opportunity often do not foresee (or do not consider) the possibility of a later disagreement and the potential need to assert their respective rights, but putting the terms governing the operations of an LLC in writing at an early stage protects the interests of everyone involved.

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