{"id":87,"date":"2022-08-01T09:03:04","date_gmt":"2022-08-01T09:03:04","guid":{"rendered":"https:\/\/openpub.libraries.rutgers.edu\/artsentrepreneurship\/?post_type=chapter&p=87"},"modified":"2022-08-01T10:57:43","modified_gmt":"2022-08-01T10:57:43","slug":"what","status":"publish","type":"chapter","link":"https:\/\/openpub.libraries.rutgers.edu\/artsentrepreneurship\/chapter\/what\/","title":{"raw":"What","rendered":"What"},"content":{"raw":"The process of crafting a meaningful mission statement forces entrepreneurs to think diligently about what exactly they aim to do, and how they want to go about doing it.\u00a0 \u201cWhat is the business entity?\u201d is an intentionally vague prompt, but the basics of business structures may help serve as a starting point.\u00a0 Persons crafting a mission statement should have a clear sense of who is involved in the venture: is the mission being written by one person about their own artistic exploits, or does the mission reflect the value and ambition of a large group of people?\r\n\r\n \r\n\r\nEspecially as a venture grows into a startup and seeks funding, capital investment relies heavily on talent.\u00a0 Some studies show that venture capital investors care as much or more about the charisma, qualifications, and dedication of the individuals behind a startup than about the quality of the idea or business plan.\u00a0 A mission statement should at least be written through a frame that considers the vision of personnel within the entity.\r\n\r\n \r\n\r\nBefore reading on: search for a mission statement from a few of your most (or least) favorite companies\u2014many mission statements are readily available online.\u00a0 How do these mission statements reflect the way the company views itself, in terms of structure and its relationship to those who benefit from the company\u2019s value?<\/em>\r\n\r\n\u00a0<\/em>\r\n\r\nA clear sense of what or who the business is may denote certain implications about the organizational structure of the business from a legal structure.\u00a0 Further information in the U.S. may be found in IRS publication 583<\/a>: \u201cStarting a Business and Keeping Records.\u201d\u00a0 Even outside the U.S., these basic legal structures exist\u2014because the ways people work together to start ventures tend to follow patterns in some way similar to businesses that have already existed.\r\n\r\n \r\n\r\nA sole proprietorship<\/strong> is a person who is operating their business alone\u2014if the proprietor offers something valuable to a market and receives money for it, they have already started a business! Proprietorships are unincorporated, meaning the owner may not need to have filed any special documents to be considered a business entity by law.\u00a0 Under current guidelines, an individual needs to earn a profit<\/strong> (earn more income than expenditures in a year\u2014also known as earnings<\/strong>) at least 3 out of 5 years.\u00a0 If the individual loses money every year, the venture is considered a hobby in terms of the tax code, which may mean that the earnings or expenditures are no longer eligible for any pertinent tax advantages to owning a proprietorship.\r\n\r\n \r\n

profit = revenue - expenses<\/em><\/p>\r\n \r\n\r\nIn general, since a proprietorship describes a structure which has not created any separate legal business entity, any assets of the business are also personal assets.\u00a0 This also means that liabilities of (debt owed by) the business are also personal liabilities, and vice versa.\u00a0 Ergo, a bad personal credit score can impede securing a loan for the business, or an accident and subsequent lawsuit against the business can also be levied against personal assets.\u00a0 If customers often enter the business owner\u2019s property as part of doing business, then creating a separate legal entity can help separate and protect personal assets against business liability.\r\n\r\n \r\n\r\nMore information about current guidelines and tax information for a sole proprietorship may be found under IRS publication 334<\/a>: \u201cTax Guide For Small Businesses.\u201d\r\n\r\n \r\n\r\nIf two or more people work together for their business, a partnership<\/strong> might best describe the business structure.\u00a0 Under a partnership, \u201ceach person contributes money, property, labor, or skill, and expects to share in the profits and losses of the business.\u201d\u00a0 Partnerships come with a slew of unique legal scenarios, including the common practice of spouses working together, which may require different tax treatment than a graphic design collective or a dance troupe.\r\n\r\n \r\n\r\nMore information about current guidelines and tax information for partnerships may be found in IRS publication 541<\/a>: \u201cPartnerships.\u201d\r\n\r\n \r\n\r\nIn both above cases, income from the business flows directly to the induvial businesspeople earning that share of a company\u2019s profits.\u00a0 But, if a legal separation between business and personal assets is desired, a corporation<\/strong> may better suit the business structure. Corporations are named as such because business owners file articles of incorporation to create an independent legal entity responsible for the business.\u00a0 The corporation is treated as its own entity in terms of tax responsibility too, however\u2014this means that the company earns a profit and then separately pays the employees (which may include the businesspeople who had started the company).\u00a0 Since taxes are generally levied on each occasion that money moves from one entity to another (a person pays sales tax to make a purchase at a store; the store\u2014a corporate entity\u2014pays a corporate tax; the company pays its workers, who then pay income tax; if the store owns real estate, it pays property tax; the cycle continues\u2026), this structure may cost more from a tax liability perspective.\u00a0 Tax codes change often however, so always consult current publications and seek guidance from a tax professional.\r\n\r\n \r\n\r\nCorporations come in different sizes, from a simpler Limited Liability Corporation (LLC) to a more complex S Corporation or C Corporation.\u00a0 More information about guidelines, legal implications, and tax information may be found in IRS publication 542<\/a>: \u201cCorporations.\u201d\r\n\r\n \r\n\r\nSpecial legal structures exist for entities with a primary motivation of doing \u201cgood\u201d for society, although defining just what \u201cgood\u201d means can be a challenging endeavor; for many businesses, the objective is to earn money (and for an artist, probably to earn money by doing what the artist loves to do\u2014make art), but if the objective is mainly to benefit society, the business may be eligible to incorporate as a non-profit entity. \u00a0Non-profits and not-for-profit companies still make money and pay employees, but they do so as a means of fulfilling a higher purpose of serving their community.\u00a0 As a benefit of their magnanimity, such organizations gain favorable tax treatment.\r\n\r\n \r\n\r\nMore information about whether an organization may file for exemption and how they may do so under Section 503(c) may be found at the IRS Small to Mid-Size Tax Exempt Organization Workshop<\/a>.","rendered":"

The process of crafting a meaningful mission statement forces entrepreneurs to think diligently about what exactly they aim to do, and how they want to go about doing it.\u00a0 \u201cWhat is the business entity?\u201d is an intentionally vague prompt, but the basics of business structures may help serve as a starting point.\u00a0 Persons crafting a mission statement should have a clear sense of who is involved in the venture: is the mission being written by one person about their own artistic exploits, or does the mission reflect the value and ambition of a large group of people?<\/p>\n

 <\/p>\n

Especially as a venture grows into a startup and seeks funding, capital investment relies heavily on talent.\u00a0 Some studies show that venture capital investors care as much or more about the charisma, qualifications, and dedication of the individuals behind a startup than about the quality of the idea or business plan.\u00a0 A mission statement should at least be written through a frame that considers the vision of personnel within the entity.<\/p>\n

 <\/p>\n

Before reading on: search for a mission statement from a few of your most (or least) favorite companies\u2014many mission statements are readily available online.\u00a0 How do these mission statements reflect the way the company views itself, in terms of structure and its relationship to those who benefit from the company\u2019s value?<\/em><\/p>\n

\u00a0<\/em><\/p>\n

A clear sense of what or who the business is may denote certain implications about the organizational structure of the business from a legal structure.\u00a0 Further information in the U.S. may be found in IRS publication 583<\/a>: \u201cStarting a Business and Keeping Records.\u201d\u00a0 Even outside the U.S., these basic legal structures exist\u2014because the ways people work together to start ventures tend to follow patterns in some way similar to businesses that have already existed.<\/p>\n

 <\/p>\n

A sole proprietorship<\/strong> is a person who is operating their business alone\u2014if the proprietor offers something valuable to a market and receives money for it, they have already started a business! Proprietorships are unincorporated, meaning the owner may not need to have filed any special documents to be considered a business entity by law.\u00a0 Under current guidelines, an individual needs to earn a profit<\/strong> (earn more income than expenditures in a year\u2014also known as earnings<\/strong>) at least 3 out of 5 years.\u00a0 If the individual loses money every year, the venture is considered a hobby in terms of the tax code, which may mean that the earnings or expenditures are no longer eligible for any pertinent tax advantages to owning a proprietorship.<\/p>\n

 <\/p>\n

profit = revenue – expenses<\/em><\/p>\n

 <\/p>\n

In general, since a proprietorship describes a structure which has not created any separate legal business entity, any assets of the business are also personal assets.\u00a0 This also means that liabilities of (debt owed by) the business are also personal liabilities, and vice versa.\u00a0 Ergo, a bad personal credit score can impede securing a loan for the business, or an accident and subsequent lawsuit against the business can also be levied against personal assets.\u00a0 If customers often enter the business owner\u2019s property as part of doing business, then creating a separate legal entity can help separate and protect personal assets against business liability.<\/p>\n

 <\/p>\n

More information about current guidelines and tax information for a sole proprietorship may be found under IRS publication 334<\/a>: \u201cTax Guide For Small Businesses.\u201d<\/p>\n

 <\/p>\n

If two or more people work together for their business, a partnership<\/strong> might best describe the business structure.\u00a0 Under a partnership, \u201ceach person contributes money, property, labor, or skill, and expects to share in the profits and losses of the business.\u201d\u00a0 Partnerships come with a slew of unique legal scenarios, including the common practice of spouses working together, which may require different tax treatment than a graphic design collective or a dance troupe.<\/p>\n

 <\/p>\n

More information about current guidelines and tax information for partnerships may be found in IRS publication 541<\/a>: \u201cPartnerships.\u201d<\/p>\n

 <\/p>\n

In both above cases, income from the business flows directly to the induvial businesspeople earning that share of a company\u2019s profits.\u00a0 But, if a legal separation between business and personal assets is desired, a corporation<\/strong> may better suit the business structure. Corporations are named as such because business owners file articles of incorporation to create an independent legal entity responsible for the business.\u00a0 The corporation is treated as its own entity in terms of tax responsibility too, however\u2014this means that the company earns a profit and then separately pays the employees (which may include the businesspeople who had started the company).\u00a0 Since taxes are generally levied on each occasion that money moves from one entity to another (a person pays sales tax to make a purchase at a store; the store\u2014a corporate entity\u2014pays a corporate tax; the company pays its workers, who then pay income tax; if the store owns real estate, it pays property tax; the cycle continues\u2026), this structure may cost more from a tax liability perspective.\u00a0 Tax codes change often however, so always consult current publications and seek guidance from a tax professional.<\/p>\n

 <\/p>\n

Corporations come in different sizes, from a simpler Limited Liability Corporation (LLC) to a more complex S Corporation or C Corporation.\u00a0 More information about guidelines, legal implications, and tax information may be found in IRS publication 542<\/a>: \u201cCorporations.\u201d<\/p>\n

 <\/p>\n

Special legal structures exist for entities with a primary motivation of doing \u201cgood\u201d for society, although defining just what \u201cgood\u201d means can be a challenging endeavor; for many businesses, the objective is to earn money (and for an artist, probably to earn money by doing what the artist loves to do\u2014make art), but if the objective is mainly to benefit society, the business may be eligible to incorporate as a non-profit entity. \u00a0Non-profits and not-for-profit companies still make money and pay employees, but they do so as a means of fulfilling a higher purpose of serving their community.\u00a0 As a benefit of their magnanimity, such organizations gain favorable tax treatment.<\/p>\n

 <\/p>\n

More information about whether an organization may file for exemption and how they may do so under Section 503(c) may be found at the IRS Small to Mid-Size Tax Exempt Organization Workshop<\/a>.<\/p>\n","protected":false},"author":12,"menu_order":3,"template":"","meta":{"pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[48],"contributor":[],"license":[],"class_list":["post-87","chapter","type-chapter","status-publish","hentry","chapter-type-standard"],"part":29,"_links":{"self":[{"href":"https:\/\/openpub.libraries.rutgers.edu\/artsentrepreneurship\/wp-json\/pressbooks\/v2\/chapters\/87","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/openpub.libraries.rutgers.edu\/artsentrepreneurship\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/openpub.libraries.rutgers.edu\/artsentrepreneurship\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/openpub.libraries.rutgers.edu\/artsentrepreneurship\/wp-json\/wp\/v2\/users\/12"}],"version-history":[{"count":4,"href":"https:\/\/openpub.libraries.rutgers.edu\/artsentrepreneurship\/wp-json\/pressbooks\/v2\/chapters\/87\/revisions"}],"predecessor-version":[{"id":93,"href":"https:\/\/openpub.libraries.rutgers.edu\/artsentrepreneurship\/wp-json\/pressbooks\/v2\/chapters\/87\/revisions\/93"}],"part":[{"href":"https:\/\/openpub.libraries.rutgers.edu\/artsentrepreneurship\/wp-json\/pressbooks\/v2\/parts\/29"}],"metadata":[{"href":"https:\/\/openpub.libraries.rutgers.edu\/artsentrepreneurship\/wp-json\/pressbooks\/v2\/chapters\/87\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/openpub.libraries.rutgers.edu\/artsentrepreneurship\/wp-json\/wp\/v2\/media?parent=87"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/openpub.libraries.rutgers.edu\/artsentrepreneurship\/wp-json\/pressbooks\/v2\/chapter-type?post=87"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/openpub.libraries.rutgers.edu\/artsentrepreneurship\/wp-json\/wp\/v2\/contributor?post=87"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/openpub.libraries.rutgers.edu\/artsentrepreneurship\/wp-json\/wp\/v2\/license?post=87"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}