© 2002 Elena Fawkner

Running a business involves risk - risk that business may either succeed brilliantly or fail miserably. Or neither. The upside is high -- financial and (perhaps) time freedom; independence; unlimited earning capacity. The downside is equally steep, just in wrong direction -- potential financial ruin if you've staked everything you own on your business's ultimate success and thrown your career down proverbial to boot. If you're running your business as a sole proprietorship or a general partnership, make no mistake -- everything you own is on line.

There's a lot that can go right and wrong in a business. A lot of it out of your control. But extent of your personal financial liability for what goes wrong is one thing you can and should control.

The answer is to form an entity separate from yourself to run business.

WHICH BUSINESS ENTITY?

As you probably already know, you have several choices when it comes to your business entity. The most basic is a sole proprietorship, followed by a partnership (general or limited), a limited liability company ("LLC") and a corporation (either a general "C" corporation or an "S" corporation - more about these later).

Although sole proprietorships and general partnerships are relatively straightforward and inexpensive business entities to establish and maintain, hence their popularity, neither of them protects you from personal liability.

If you're a sole proprietor, you've probably made this election by default - by doing nothing other than starting a part-time Internet business out of your spare bedroom, most likely.

A limited partnership will protect limited partners from personal liability beyond extent of their capital contribution to partnership, but limited partners cannot participate in management and control of business so that's not a good option for most of you reading this article. Needing to control and manage your own business is most likely non-negotiable.

As an attorney, I generally recommend that small business owners, including (especially!) home-based and Internet entrepreneurs, incorporate at least as soon as they are generating sufficient profits from business that amount of tax payable on such profits equals or exceeds minimum franchise tax payable in state in which business is being conducted. In California, for example, one of most onerous states in U.S. when it comes to taxes, annual minimum franchise tax is $800 per year. Therefore, as soon as you're generating profits tax on which is $800 or more in a year, there is no tax disadvantage to incorporation and every advantage.

HOW DOES INCORPORATION PROTECT AGAINST PERSONAL LIABILITY?

Quite simply, when you form a corporation (or an LLC), you're forming a separate legal entity. This separate legal entity has power to enter into contracts, own and dispose of assets, hire and fire employees and generally do anything that a sole proprietor could do. The difference between corporation and sole proprietorship, however, is that only corporation's assets are at risk, not owner/shareholder's (beyond shareholder's contribution to share capital, that is).

Let's take an example. You run a part-time Internet business. You're still working a day job and this is really just a way to make a little money on side to save for your annual Hawaiian vacation and even more expensive spa stay for your dog while you're away. To you, this is only a pocket-money venture and so you don't really think of it as a business at all, really. So you don't give a second's thought to fact that you're running a business as a sole proprietor.

You register a domain name that, unbeknown to you, violates a Macrohard trademark. You create a website for that domain and, lo and behold, overnight (of course, because this is Internet) your business becomes successful beyond your wildest dreams due, in no small part, to site visitors mistakenly believing they are doing business with Microsoft's arch-rival.

Macrohard, meanwhile, sees all of this and figures your gain is its loss and sues you for an account of profits based on your misuse of its trademark. And wins. It gets a judgment for $100,000. Then it executes on its judgment. And you lose your house, your savings and your business.

Now let's look at a slightly different scenario. You're fortunate enough to have read this article before you established your business and formed an S-corporation, Hawaii Here We Come, Inc. The only asset of HHWC, Inc. is domain name and website. So, when MarcoHard gets its judgment against HHWC, Inc., only asset it can touch is domain name and website. That's bad enough, of course, but you did, after all, violate their trademark. But get this. Because they're in your name, not HHWC, Inc.'s, you still have your house and your savings.

HOW LIMITED PERSONAL LIABILITY CAN BE LOST

© 2002 Elena Fawkner

For many people, words “network marketing” or “MLM” (multi-level marketing) conjure up images of hitting up your so-called “warm market” (those two or three hundred people near and dear to you as well as those unfortunate enough to have crossed your path at some time in distant past) and pleading, cajoling, persuading, arguing and plain pressuring them to join your program. Or organizing house parties and presentations to make your pitch to a captive audience. Or having to approach complete strangers while standing in line at supermarket.

Any or all of these options may be unpalatable to you, and for good reason. They certainly were to me. But what if you didn’t have to do any of that? What if there was a way to have people approach YOU to join your business rather than other way around? What if you didn’t have to hold face-to-face meetings at ALL? What if you didn’t have to make a single approach to someone you know? Or to someone you don’t? Would you think differently about network marketing then?

Well, there is such a way. Running a network marketing business using Internet.

I’ve heard many people say that it’s just not possible to run a network marketing business exclusively online. Well, I’m here to tell you different. Because I’m doing it and if I can do it, so can you.

Before I tell you a bit more about how a network marketing business can be run exclusively online, let me clear up a couple of possible misconceptions. First, running an online business does NOT mean creating a website and then sitting back expecting business to run itself. You will work every bit as hard in an online network marketing business as you will in an offline network marketing business. This is just a different method, that’s all.

Secondly, when I say “exclusively” online, I mean that’s where your lead generation and prequalification work happens, it does NOT mean you will never have to pick up a telephone and speak to a real, live person at other end.

OK, so what’s involved in running a network marketing business online then?

The first thing to understand is that network marketing, just like Internet marketing, is a numbers game. It is for this precise reason that network marketing is IDEALLY suited to being run online. Why? Because ANY Internet business is a numbers game. Just ask anyone with a web site what their focus is when their web site is up and running. It’s traffic. It’s getting as many people to their web site as they can because somewhere in range of 2% - 4% of site visitors will click on a link that, in some fashion or another, can generate revenue for web site owner. Of those 2% - 4% of visitors who click on link, however, only 1% or so of THEM will go on to buy after clicking on link. Ergo, with such tiny response rates, high traffic is name of game. The same principle holds true for your network marketing business.

At its core, network marketing is a simple business. It’s all about generating leads, qualifying those leads and then following up with those qualified leads until they take action you want them to take (or tell you to stop) - either purchasing product from you or joining your downline as a productive distributor.

=> GENERATING LEADS

How do you generate leads? This depends on your starting position. If you already have an established web site and your network marketing business is a natural fit with that existing site, then you will not need to do too much in way of additional lead generation for your network marketing business other than including a link to your network marketing company’s web site from your existing site.

But if you don’t have an existing web site, you’re going to have to start from scratch. You’re going to need to create a web site (on a subject matter of interest to people who would also be interested in your network marketing business opportunity or products), link to your network marketing company’s site from that web site, submit your site to search engines (and employ all myriad other ways of driving traffic to it) and you’re going to have to start publishing an ezine (electronic newsletter) on a relevant subject and on a regular basis and build a sizeable subscriber list (again using a variety of different methods).