As a new mom and National Sales Director at Coca-Cola, I didn’t give much thought to food allergies. However, when my daughter Vivienne started eating solid foods, it became clear that she was allergic to tree nuts, bananas and corn. In addition, she has a rare condition called FPIES that causes a severe reaction to eggs. I was surprised and frustrated to learn that there was nothing on the market that met her dietary needs and my health standards. With determination and a belief that you can’t wait around for someone else to solve your problems, I set out on a path to create a new line of healthy, convenient allergy-friendly snacks for my daughter and everyone to enjoy - Partake Foods. As a minority and a woman starting a new business, I discovered a few challenging realities that are rarely talked about.
1. Access to Capital
African-American women are the fastest growing group of entrepreneurs in the US with over 1.5M businesses that generate over $44B in annual revenue. However, out of the 10,238 venture deals between 2012 and 2014, just 24 of those involved Black women. Statistically, that is zero!
Only 11 startups led by Black women have raised more than $1M in funding. When you think about access to capital - having angels in your personal network, having business ideas that are relatable to the VCs you are pitching, and looking like the people you are pitching to, minority women are at a definite disadvantage.
In speaking to successful founders, I’m repeatedly told that one of the most important contributors to success will be my network of advisors and mentors. However, there aren’t a ton of minority entrepreneurs, particularly in the consumer products space where I operate, making it’s difficult to find others with similar struggles, drivers and challenges.
3. People Discount Your Business
I can’t count on my hands the number of times I’ve walked into a room – whether to pitch, at a trade show, or a meeting with vendors - and been with a white female or male counterpart and been totally ignored. People turn to my non-minority counterpart and assume they are the business leader.
When that’s the natural thought, it’s hard to convey to people how serious you are about your business and get them to believe in you, since they’ve discounted you and your business ability from the minute they saw you.
4. Lack of Support from Community/Culture
I have an amazingly supportive network of friends and family, but I may scream if I hear the question again, “Are you sure?” and “Why would you ever leave your corporate job?” It’s unfathomable to many of my friends and family that I would leave the security of a 6 figure 9-5 to embark on a journey of entrepreneurship. “Side hustles” are a huge thing in our community and speak to the ability of managing a full-time job, as well as an entrepreneurial venture, but it’s often taboo to make the leap to becoming a full-time entrepreneur.
5. There is a Ton of Opportunity
The time is ripe to be both a female and minority entrepreneur. Investors and large corporations are awakening to the disparity that exists in funding and opportunity, as well as realizing the great bets that they are missing out on.
Because of this, funds that are specifically interested in investing in female and minority founders are popping up, and programs like Project Entrepreneur and CODE2040 are committed to changing the current statistics. While there’s still a gap, there are so many amazing founders and business leaders working to trail blaze a chance.
Business entities can be defined as the corporate, tax and legal structures which an organization chooses to officially follow at the time of its official registration with the state authorities. In total, there are fifteen different types of business entities, which would be the following.
- Sole Proprietorship
- General Partnership
- Limited Partnership or LP
- Limited Liability Partnership or LLP
- Limited Liability Limited Partnership or LLLP
- Limited Liability Company or LLC
- Professional LLC
- Professional Corporation
- Nonprofit Organization
- Cooperative Organization
As estates, municipalities and nonprofits do not concern the main topic here, the following discussions will exclude the three.
Importance of the State: The Same Corporate Structure Will Vary from State to State
All organizations must register themselves as entities at the state level in United States, so the rules and regulations governing them differ quite a bit, based on the state in question.
What this means is that a Texas LLC for example will not operate under the same rules and regulations as an LLC registered in New York. Also, an LLC in Texas can have the same name as another company that is registered in a different state, but it's not advisable given how difficult it could become in the future while filing for patents.
To know more about such quirks and step-by-step instructions on how to start an LLC in Texas, visit howtostartanllc.com, and you could get started with the online process immediately. The information and services on the website are not just limited to Texas LLC organizations either, but they have a dedicated page for guiding fresh entrepreneurs through the corporate tax structures in every state.
Sole Proprietorship: Default for Freelancers and Consultants
There is only one owner or head in a sole proprietorship, and that's what makes it ideal for one-man businesses that deal with freelance work and consulting services. Single man sole proprietorships are automatic in nature, therefore, registration with the state is unnecessary.
Sole proprietorships are also suited to a degree for singular teams such as a small construction crew, a group of handymen, or even miniature establishments in retail. Also, this puts the owner's personal financial status at jeopardy.
Due to the fact that a sole proprietorship entity puts all responsibilities for paying taxes and returning loans, it directly jeopardizes the sole proprietor's personal belongings in case of a lawsuit, or even after a failed loan repayment.
This is the main reason why even the most miniature establishments find LLCs to be a better option, but this is not the only reason either. Sole proprietors also find it hard to start their business credit or even get significant business loans.
General Partnership: Equal Responsibilities
The only significant difference between a General Partnership and a Sole Proprietorship is the fact that two or more owners share responsibilities and liabilities equally in a General Partnership, as opposed to there being only one responsible and liable party in the latter. Other than that, they more or less share the same pros and cons.
Registration with the state is not necessary in most cases, and although it still puts the finances of the business owners at risk here, the partnership divides the liability, making it a slightly better option than sole proprietorship for small teams of skilled workers or even small restaurants and such.
Limited Partnership: Active and Investing Partners
A Limited Partnership (LP) has to be registered with a state and whether it has just two or more partners, there are two different types of partners in all LP establishments.
The active partner or the general partner is the one who is responsible and liable for operating the business in its entirety. The silent or investing partner, on the other hand, is the one who invests funds or other resources into the organization. The latter has very limited liability or control over the company's operations.
It's a perfect way for investors to put their money into a sector that they are personally not experienced with, but have access to people who do. From the perspective of the general partners, they have similar responsibilities and liabilities to those in a general partnership.
It's the default strategy for startups to find funding and as long as the idea is sound, it has made way for multiple successful entrepreneurial ventures in the recent past. However, personal liability still looms as a dangerous prospect for the active partners to consider.
Limited Liability Company and Professional LLC
Small businesses have no better entity structure to follow than the LLC, given that it takes multiple good ideas from various corporate structures, virtually eliminating most cons that are inherent to them. Any and all small businesses that are in a position to or are in requirement of signing up with their respective state, usually choose an LLC entity because of the following reasons:
- It removes the dangerous aspect of personal liability if the business falls in debt or is sued for reparations
- The state offers the choice of choosing between corporation and partnership tax slabs
- The limited legalities and paperwork make it suited for small businesses
While more expensive than a general partnership or a sole proprietorship, a professional LLC is going to be a much safer choice for freelancers and consultants, especially if it involves risk of any kind. This makes it ideal for even single man businesses such a physician's practice or the consultancy services of an accountant.
B, C and S-Corporation
By definition, all corporation entities share most of the same attributes and as the term suggests, they're more suited for larger or at least medium sized businesses in any sector. The differences between the three are vast once you delve into the tax structures which govern each entity.
However, the basic differences can be observed by simply taking a look at each of their definitive descriptions, as stated below.
C-Corporation – This is the default corporate entity for large or medium-large businesses, complete with a board of directors, a CEO/CEOs, other executive officers and shareholders.
The shareholders or owners are not liable for debts or legal dispute settlements in a C-Corporation, and they may qualify for lower tax slabs than is possible in any other corporate structure. On becoming big enough, they also have the option to become a publicly traded company, which is ideal for generating growth investments.
B- Corporation – the same rules apply as a C-Corporation, but due to their registered and certified commitment to social and environmental standards maintenance, B-Corporations will have a more lenient tax structure to deal with.
S-Corporation – Almost identical to a C-Corporation, the difference is in scale, as S-Corporations are only meant for small businesses, general partnerships and even sole proprietors. The main difference here is that due to the creation of a pass-through entity, aka a S-Corporation, the owner/owners do not have liability for business debt and legal disputes. They also are not taxed on the corporate slab.
Cooperative: Limited Application
A cooperation structure in most cases is a voluntary partnership of limited responsibilities that binds people in mutual interest - it is an inefficient structure due to the voluntary nature of its legal bindings, which often makes it unsuitable for traditional business operations. Nevertheless, the limited liability clause exempts all members of a cooperative from having personal liability for paying debts and settling claims.
This should clear up most of the confusion surrounding the core concepts and their suitability. In case you are wondering why the Professional Corporation structure wasn't mentioned, then that's because it has very limited applications. Meant for self-employed, skilled professionals or small organizations founded by them, they have less appeal now in comparison to an LLC or an S-Corporation.