Don’t be a ‘Cowboy’ entrepreneur

Editor’s note: Michelle Stockman works with Little Rock-based Arkansas Capital Corp. to promote entrepreneurship development around the state. Stockman earned a bachelor’s degree from Loyola University-Chicago in communications and fine arts, and earned a master’s in entrepreneurship from Western Carolina University. Her thoughts on business success appear each week on The City Wire.

So you want to start a business? You probably have the best idea since sliced bread and all the plans in your head are a sure money maker. That’s great! So what do you first?

There is a lot of “talk” about how to set up your business, get a CPA and a lawyer, set up your space to where you will conduct business and you’re good to go. Before you become the “cowboy” entrepreneur (one who rolls out of bed, starts a business and refuses to seek assistance before cashing out the 401(k) to start said business), take the time to ensure that you are set-up legally.

Amongst the confusing messages the nascent entrepreneur (pre-business start-up) receives, writing a business plan is often the recommended first step. Beyond that, you will have a “honey do list” quite lengthy to check off as you start the business. Attending the Arkansas Small Business Technology Development Center workshop is a great first step.

One of the early items to check off is deciding on what form your business should organize. A small business friendly accountant will be a great help in seeing what form of business would suite your needs, especially in regard to taxes. Incorporating your business has great legal benefits, but there are several different incorporation options to decipher.

Arkansas is very kind to those wanting to incorporate their business. Not only is their fee relatively low ($45 for online submission), the process is relatively simple. By going to the Arkansas Secretary of State Business and Commercial Services Web site, you will find the necessary information and form needed to incorporate your business.

While Arkansas does not require you to file a copy of your company’s bylaws, it is still recommended to create bylaws. This will lay out information about the board, company stock, committees, payment of directors, conflict of interest policy, liability of director and more. This is an important document that will govern how your organization runs. It is also a good idea to have a lawyer read through your bylaws.

Beyond your bylaws, you need to put together your “Articles of Incorporation.” This is a form you can download at this link. In this document, you will need to decide on how many shares your corporation will start with and the value of each share. For a start-up company, some experts suggest keeping the number of shares to a manageable amount (you can always amend your articles to add more shares if needed in the future). Additionally, the value of the shares will have tax ramifications, so consult with your accountant before putting a value on the shares.

Additionally, there are two types of shares a company can assign to others. Common stock is the more typical type of stock used and gives the share holder an equity (ownership) stack in the company. This ownership stake includes dividend payments and a voting roll in the company. Preferred stock is the second type of shares that give the shareholder ownership rights at a fixed dividend rate and this person does not have voting rights in the company.

Lastly, if you incorporate your business under one name, but your main product or service is sold under a different name, you will also wish to file a “Doing Business As” (DBA) form with the state. Setting your business up may add more work to get started, but each step is worth the wait both legally and financially.

Stockman can be reached at [email protected]