75 Startup Secrets

Naming and Incorporating

The Name Game
Here's how to choose your handle with care.

Every business needs a name, and picking a cool, memorable moniker is the name of the game. But hiring a naming firm or advertising agency to help you can cost thousands of dollars.

It's possible to name the company on your own--if you know how to do it. Start with a pen, some paper and a very perceptive ear attuned to everything going on around you. "You want to have a checklist," says Marcia Yudkin, founder and "head stork" of Namedatlast.com, a Goshen, Massachusetts, company that will brainstorm 10 potential company names or tag lines for you for about $1,000. Here's your quick check-list for mastering the name game:

11. Think marketing. First, decide on the advertising that will drive 90 percent of your business. Will you rely primarily on print ads, signage at your location, word-of-mouth, the internet, Yellow Pages, radio or some combination thereof? "Depending on your answers to these questions, certain criteria become very important," Yudkin says. Overdone alliterations, foreign words and domain names with hyphens are the kiss of death for websites and radio ads, where spelling and easy pronunciation are critical. If your business will be driven by the Yellow Pages, an old trick is picking a company name that starts with A, B or C so your ad will be placed toward the front of its section. But not every business can be named Aardvark or Abba, so you'll have to get creative.

12. Scan the competition. Compiling the names of local competitors offers a starting point for differentiating yourself. Do your competitors' names really fit the target market? Are the names too traditional while the customer is hip and cool, or vice versa? The answers will tell you what doesn't work, which can help you narrow your list of possibilities.

13. Get brainstorming. "Do a brain dump of every possibility that comes to mind," says Yudkin, who asks her clients to think of company names in other industries and why they like them as a brainstorming exercise. Think of buzzwords that appeal to your potential customer and that the competition isn't using, and consider the result the customer wants from using your product or service. Yudkin chose Namedatlast.com, for example, because it focused on the result of using her naming service. "There aren't as many companies using those kinds of names," Yudkin says. "They do tend to stand out."

14. Check for negative connotations. Names clients have brought up to Yudkin, such as Cobweb Design, Goosechase and Wild Weasel, may sound clever, but they can leave potential customers with an unsettled feeling about your product or service before they even try it. Consider every word on your list for negative meanings, and ask friends and family how different words strike them. Scratch potential offenders off your list. If you're creating a website, ponder your company's name in a global marketplace so you don't offend an entire country.

15. Check for trademarks. More than one business owner has come up with a company name and put it out there, only to receive a cease and desist order that forces him or her back to the drawing board. "Before you commit yourself in any way to commissioning a logo, putting up a website, making signage and so on, make sure the name is legally available," Yudkin says. Save yourself a big headache by visiting the U.S. Patent and Trademark site at www.uspto.gov , where you can search for registered trademarks. Also visit www.yudkin.com for additional tips on naming your business.

Continue learning: You should be well on your way to an amazing name by now. But before you commit, make sure you haven't made one of these eight mistakes .

To Inc. or Not to Inc.?
Select the right legal structure for your company's operations.

Start the process of selecting a legal structure for your startup by asking yourself which legal jurisdiction you want to set up in. "Some people talk about Delaware, some people talk about Nevada, but the short answer for a small business is: Stay at home," says Leonard DuBoff, a Portland, Oregon, attorney and author of The Law (In Plain English) for Small Business. Incorporating in Delaware or Nevada may make sense for companies with lots of investors, but you'll have more control and convenience if you legally base your startup where you are actually located. With this decision made, use the following tips to help you settle on a legal structure:

16. Consider your appetite for liability. The various legal entities all offer entrepreneurs different protections against liability. A corporation or an LLC offers you the best protection against being held personally liable for actions by employees or others. But, DuBoff notes, no form of organization completely shields entrepreneurs from personal liability. "If you are driving and rear-end my car, whether you're driving for yourself or a corporation, you're liable," DuBoff says. The type of business entity you choose won't change that. The entity affects your liability for the acts of employees, partners and contractors. A sole proprietorship provides no liability shield. A partnership makes you liable not only for your wrongful acts, but for those of your partner as well. If you don't have employees, contractors or partners, a corporation or LLC won't provide much liability benefit.

17. Consider access to capital. As a sole proprietor, debt financing is the only way you can raise money for your business. Partnerships let you borrow as well as ask other partners for capital. "Corporations and LLCs have much greater flexibility in acquiring additional investments," DuBoff says. For instance, these entities can sell equity to others to generate capital. "If that's important to you, that will [help] determine the entity you select."

18. Think about your tolerance for paperwork. "A sole proprietorship is simple and elegant," DuBoff says. "There's almost no compliance." Business licenses and assumed--name certificates are all the red tape sole proprietors face in most jurisdictions. State, local and federal regulation, compliance and filing requirements rise sharply when you set up a partnership, an LLC or a corporation.

19. Know the tax implications. As a sole pro prietor or partner, you have full, personal tax liability for all the business's profits. The upside is that you can deduct the business's losses on your personal tax return. A C corporation is itself a taxable entity. If it distributes money to you or other owners as a dividend, you also pay taxes, so the money is taxed twice. With an S corporation, profits pass directly to you without being taxed at the corporate level. Also, S corporation dividends and distributions are treated as passive income, so they aren't subject to payroll taxes. LLCs can be set up similar to C corporations or like pass-through S corporations, but "an LLC that elects to be taxed as a pass-through doesn't get as favorable treatment as an S corporation," DuBoff says.

S corporations have a special risk for passive owners because they will be taxed on their distributable share of the corporation's earnings. If the S corporation's active owner-managers opt to put profits back into the company instead of distributing them to shareholders, a passive owner could have to pay taxes on money he or she didn't receive--"an awful situation," says DuBoff. So if you set up an S corporation, make sure you are actively in control of it, or incorporate safeguards to make sure you'll receive enough money to cover taxes on distributable profits.

If you're uncertain what option is best for you, consult an attorney familiar with small-business issues.

Continue learning: Visit our Starting How-To Guide section to find how-tos on the different legal structures, including partnerships, sole proprietorships, LLCs and more.

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This article was originally published in the March 2006 print edition of Entrepreneur's StartUps with the headline: 75 Startup Secrets.

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