Are you looking to start a horse business this year?
Do you know which legal form to choose for your new company?
I understand how frustrating all this can be!
Lawyers explain the different options, without taking the business decision for you. Commonly, they’ll let you decide based on your own business judgment and what suits your situation.
If you are like most entrepreneurs, this will make things even worse and will make you even more confused.
It’s totally fine, don’t panic!
Follow the following steps and you will have a clearer picture of what needs to be done.
First, write down why you want to start a business?
What’s your vision and mission of your business? How would you like it to be, have, do and look like?
Then check the different legal structures to see what most aligned with your purposes.
There isn’t a perfect business structure.
Each business form has its pros and cons. Make sure that you understand the differences and most importantly, how it will impact your business, especially from tax and liability perspectives.
A golden rule would be to start small and keep it simple.
The business structure role is not to impress anybody or make you shine.
Some positions or titles like a (CEO or Chairman) look or sound tempting. Don’t fall into this ego trap. Just stick to what limit your risks, minimize your taxes and makes your life easier.
Here are the steps, that will give you more clarity on what’s legally required and what you need to think about when you start a new business (which varies from one country to another but the main fundamental principles stay the same).
You would need to talk to a corporate lawyer, a tax auditor or CPA who is licensed in the jurisdiction where you want to start and operate a new business.
This article is not intended, construed or interpreted as legal or financial advice to any particular person or case. It is just for general information purposes.
Generally speaking, a limited liability company is a legal form most commonly recommended to entrepreneurs starting micro or small businesses.
A micro business would typically have less than 10 employees and a small business would have between 10 and 50 employees.
Company laws in different countries usually distinguish between two broad types of business forms - partnerships and corporations.
Without going into much detail, you need to understand one thing in this perspective: that in most jurisdictions, incorporating a partnership may not limit your liability, especially if you’re the general partner or in other words - the partner who is managing the company.
Unlimited liability in this context means that all your money will be at risk to cover your partnership debt although some laws would give a limited partner option, for the partners who are not engaged in managing their companies.
Accordingly, it is not very recommended, in my view, to chose this type of legal form for your startup.
Why? Because you need to limit your liability.
Limited liability companies and joint stock corporations, both in most jurisdictions, limit your liability to the money you invested in shares or stocks. Which means your personal property or money (your home, car, money in your bank) is not at risk.
Assuming you are not in the venture capital or private equity business or have any plans to list your business on the stock exchange in the near future, you have a partner or two, capital to startup with that’s not in excess of USD 100K, most probably a limited liability company would be your best choice or popular option.
It’s recommended to invest surplus money that you don’t need to cover your day to day living expenses, rent, and bills.
It’s important to have a business plan, SWOT analysis, STEP, and a business model to start off with.
You need to research what those acronyms stand for and figure them out.
If you don’t know these acronyms, it would be better to find some templates to make your life easier.
In most cases, a limited liability company’s capital requirement ranges from USD 5K to 50K depending on the jurisdiction in question. Typically around USD 20K.
Usually, a joint stock corporation capital requirement will start from USD 100K. However, some jurisdictions allow partial payment of about 25% to be paid upfront. The remaining may be paid in installments later in subsequent years.
Obviously, you’ll need to cover the minimum capital requirement or partial payment. Your capital should be moderate and adequate to your activity or similar businesses in your niche or vertical. Not too much or too little. Typically, you need at least what will cover your expenses (for the first six months to one year).
It is normal for you to encounter more expenses than revenue in the first year. If all is set up correctly and you put in the hard work, you may or may not see a gradual shift in the opposite direction in the following years, until you reach a breakeven milestone. This is when your revenue covers your expenses. Anything in excess of that point is profit.
As concerns profits, you’ll either distribute them, so they become dividends, or you can reinvest them in your business as retained earnings for the following years.
There are normally rules for distributions, which in some cases oblige you to build legal reserves, typically up to half your company’s capital.
It is common practice that you retain your earnings for the first few years to grow your business and build reserves. Some countries that prioritize prudence over transparency in their accounting standards, like Switzerland for example, may allow you to have latent or hidden reserves. Other countries won’t.
Accordingly, it’s very important to have a business plan with a budget or estimated costs for the coming years. Sometimes, it’s not easy to figure out those numbers precisely, but it’s important to have an estimate.
Mike Tyson once said, “Everyone has a plan until they get punched in the face”.
Think of your planning documents as living documents that you will always need to adjust, tweak, and tune going forward. Like a musician who adjusts his guitar chords over and over again before every gig.
You’ll need to do that for every business, project, service or product.
Master plans are not just important to build your strategies and tactics, but you will also need metrics to measure them against. You can pivot and take corrective actions whenever necessary in your business development journey.
In most cases, you’ll need partners, delegates, and outsourced collaborators.
Some jurisdictions allow one-man show businesses and others don’t.
In all cases, it takes two to tango, I suppose. You can’t reach that far on your own. You’ll need a team. Teamwork and networking are essentials for the success of any business.
Having at least a partner is good for brainstorming, support, and to hold each other accountable for what needs to be done.
Any successful business, project, service or product needs good teamwork behind it. Those teammates need not necessarily partners owning shares in your business, but it’s essential to have somebody you can rely on.
Doing everything yourself is not something I would recommend. To scale your business, you would need to focus on only doing what you are good at. Delegate, automate or outsource the rest. The internet offers a great opportunity for that. Check sites like Upwork, for example.
You can even leverage the difference in labor costs, and get better value for money, by outsourcing to overseas skilled labor countries like India, China, the Philippines, and Egypt.
Arbitrage can also be done, given the fluctuation of exchange rates so you can benefit from major and sudden drops in exchange rates against the US Dollar like what happened in South Africa and Egypt in recent history.
Don’t marry for money. Your partner is here to stay, at least for a few years.
Have partners who you like to spend time with. Those who share your vision. Those who you enjoy working and chatting with. Like-minded, yet diversified and multi-talented.
Since you - the founders - are going to be managing your businesses, as most startups do, then try to have the right mix of people who have diversified knowledge, skills, capabilities, and experience.
It’s strongly recommended to have a large spectrum of interdisciplinary skills and diversity in the workplace.
Hiring or outsourcing to disabled, marginalized and disadvantaged people, who have the required skills, knowledge and professional attitude is to be encouraged. The social aspects and philanthropic impact of your business is something that you should seriously consider.
Environmental and social awareness are both very important these days. Sustainability is something you need to consider, of course, and having partners and collaborators who have that level of awareness is necessary.
You definitely also need to consider a good corporate lawyer and the legal auditor or tax accountant for your accounting and taxes. You do not need to retain them on a continuous basis, but at least have their opinion or services at the start of your journey to ensure you walk on the right foot, you know your rights, obligations, and how to manage your legal issues and accounting books.
Virtual assistants are nowadays available online too.
Name: You will need to choose a name for your business. You will need to search a database to check if it is free to take or if it’s already used by another business. It’s good practice also to check it as a domain name too, and even better to search it as a trademark as well. To make sure that you can later protect it as a domain name (if you plan to have a website) and trade or service mark if you are selling a branded product or service that needs to be trademarked.
AoI: You need to prepare your Articles of Incorporation, which in some jurisdictions is referred to as Articles of Organizations. In other jurisdictions, there are also by-laws or statutes. Whatever the title may be, it is more or less the same thing. It is the contract that forms your business and its bible or constitutional document. It typically includes: names of the partners and managers, the objective of the company, its legal address, the amount of capital, number and value of shares, fiscal year, general meetings, tax auditor’s name, accounting books to hold...etc
EIN or UID: It is your Employer Identification or Business Number, in some other jurisdictions they call it Commercial Registration Number, or Unified Number. It is a unique number to identify your business. It’s like your business ID when dealing with governmental agencies or third parties.
Taxes: You will need to register with income and sales tax authorities in most jurisdictions, except if you are in a free zone or tax-free area, where such registration is not required. Normally you get a tax card or number for your tax registration. In some countries, you are not required to register for sales tax unless you reach a certain turnover threshold.
Bank A/C: Businesses need a separate bank account so that the partners can deposit their shares of capital, and later it operates as a business account to make and receive payments. Partners need to designate who’s eligible to sign to transact on its bank accounts. Only those eligible designees will be entitled to transact at the bank on behalf of the business.
Social and labor authorities: In most jurisdictions, you will need to register your business as an employer at the social insurance services or labor office. With some exceptions, you might only be required to do that if you have employees or a minimum number of workers.
Finally, I am wishing you the best of luck and success in whatever journey you chose to take.
Just remember to move forward seeking progress rather than perfection. It’s those small steps you consistently take every day or week that build up and help you eventually achieve your goals.
The next logical step after you start your business is to start marketing and selling your equestrian products and services as soon as possible.
Check this article if you want to know how to market your business:
Time flies so enjoy every moment of your equestrian and business journey.
Choose joy, smile and stay positive!
As a corporate lawyer and certified horse professional, I manage EquiJuri, an equestrian sports agency that helps horse riders develop their careers and set up and run their equestrian businesses. We offer our magic circle clients legal, marketing and management consultancy to grow their businesses and online presence.
Contact me now to see how we can work together.