By: Tamara Monosoff | 8/1/2008
People will believe in you when they see you taking positive steps toward your goal.
You're starting a business or getting your idea off the ground. You're determined to make this a success. But how can you get others--your spouse, your family and your friends--to take you seriously?
When you're full of passion and drive, it's frustrating when others don't seem to share your enthusiasm. They might nod politely as you express your ideas, but you sense that they don't believe in you. And they definitely aren't offering to help. What gives?
If you want the support of others, the first thing you must do is look inward and figure out how serious you are. Are you the type to have a new idea or scheme every week? Have you started lots of new projects in the past, only to lose enthusiasm and eventually drop them? While this shouldn't be a barrier to taking on something new, it could be a clue to why others don't take you as seriously as you wish they would.
Don't lose hope. If you're truly committed to your startup, others will start believing as you make visible progress. Here's an example: I receive calls and e-mails daily from aspiring inventors and entrepreneurs. I can immediately tell when someone is determined to make his or her business work and is serious about what he or she is doing.
Do Your Homework
Those people have done their homework. They understand the process. They've researched and have a fair understanding of the marketplace. They've spoken to other professionals in the field. They may have even taken steps in product development. At the very least, they've printed business cards or set up a business line.
Typically, they will call or e-mail with a specific question that is a few layers deep into the business development process. It's very different from an e-mail that says, "I have an idea that I know will sell millions. Now what?"
I and those close to you will respect a similar approach. They'll begin believing in you and perhaps offer advice, hands-on help or even money when they see you working toward your goal. The key is to stop talking about it and start doing it--and the respect for your efforts will follow.
So what, specifically, should you do to begin?
First, spend more than five minutes on the internet researching similar and competitive products or services, and document this research. Read books and magazine articles about starting up a business.
Then create a written business plan. Once others see your written plan, they'll have no choice but to take you seriously. While your end goal is to launch your product or service--not just get others to believe in what you're doing--it can significantly help your process having people support you along the way.
And if you'd like a business partner to join you (even if it's a family member or friend), a written plan can encourage someone to buy in.
Take Yourself Seriously
When I began talking about my first invention, the TP Saver, my husband listened but didn't get too involved. But I was determined to create a solution to a problem I was experiencing (I wanted a device to prevent my toddler from unraveling the toilet paper on a daily basis), and I knew other families must be having the same issue.
When I finally came home from a local machine shop with a rudimentary prototype of my idea, my husband sat up and took notice, realizing I was serious about this endeavor. I have since had his full support, and today we run my company as a team.
Like anything you do in life--starting an exercise plan, quitting a bad habit or taking on a new project--the key to getting others to respect your efforts and take you seriously is to take yourself seriously. Recognize that you are your first investor. Then you won't need to convince anyone: It will naturally fall into place.
Friday, August 29, 2008
Saturday, August 9, 2008
Currency ????
Currency
From Wikipedia, the free encyclopedia
A currency is a unit of exchange, facilitating the transfer of goods and/or services. It is one form of money, where money is anything that serves as a medium of exchange, a store of value, and a standard of value. A currency is the dominant medium of exchange. To facilitate trade between currency zones, there are exchange rates, which are the prices at which currencies (and the goods and services of individual currency zones) can be exchanged against each other. Currencies can be classified as either floating currencies or fixed currencies based on their exchange rate regime. In
common usage, currency sometimes refers to only paper money, as in coins and currency, but this is misleading. Coins and paper money are both forms of currency.
In most cases, each country has monopoly control over the supply and production of its own currency. Member countries of the European Union's Economic and Monetary Union are a notable exception to this rule, as they have ceded control of monetary policy to the European Central Bank.
In cases where a country does have control of its own currency, that control is exercised either by a central bank or by a Ministry of Finance. In either case, the institution that has control of monetary policy is referred to as the monetary authority. Monetary authorities have varying degrees of autonomy from the governments that create them. In the United States, the Federal Reserve System operates without direct interference from the legislative or executive branches. It is important to note that a monetary authority is created and supported by its sponsoring government, so independence can be reduced or revoked by the legislative or executive authority that creates it. However, in practical terms, the revocation of authority is not likely. In almost all Western countries, the monetary authority is largely independent from the government.
Several countries can use the same name, each for their own currency (e.g. Canadian dollars and United States dollars), several countries can use the same currency (e.g. the euro), or a country can declare the currency of another country to be legal tender. For example, Panama and El Salvador have declared U.S. currency to be legal tender, and from 1791–1857, Spanish silver coins were legal tender in the United States. At various times countries have either re-stamped foreign coins, or used currency board issuing one note of currency for each note of a foreign government held, as Ecuador currently does.
Each currency typically has one fractional currency, often valued at 1⁄100 of the main currency: 100 cents = 1 dollar, 100 centimes = 1 franc, 100 pence = 1 pound. Units of 1⁄10 or 1⁄1000 are also common, but some currencies do not have any smaller units. Mauritania and Madagascar are the only remaining countries that do not use the decimal system; instead, the Mauritanian ouguiya is divided into 5 khoums, while the Malagasy ariary is divided into 5 iraimbilanja. However, due to inflation, both fractional units have in practice fallen into disuse.
History
Early currency
The origin of currency is the creation of a circulating medium of exchange based on a unit of account which quickly becomes a store of value. Currency evolved from two basic innovations: the use of counters to assure that shipments arrived with the same goods that were shipped, and later with the use of silver ingots to represent stored value in the form of grain. Both of these developments had occurred by 2000 BC. Originally money was a form of receipting grain stored in temple granaries in ancient Egypt and Mesopotamia.
This first stage of currency, where metals were used to represent stored value, and symbols to represent commodities, formed the basis of trade in the Fertile Crescent for over 1500 years. However, the collapse of the Near Eastern trading system pointed to a flaw: in an era where there was no place that was safe to store value, the value of a circulating medium could only be as sound as the forces that defended that store. Trade could only reach as far as the credibility of that military. By the late Bronze Age, however, a series of international treaties had established safe passage for merchants around the Eastern Mediterranean, spreading from Minoan Crete and Mycenae in the North West to Elam and Bahrein in the South East. Although it is not known what functioned as a currency to facilitate these exchanges, it is thought that ox-hide shaped ingots of copper, produced in Cyprus may have functioned as a currency.
It is thought that the increase in piracy and raiding associated with the Bronze Age collapse, possibly produced by the Peoples of the Sea, brought this trading system to an end. It was only with the recovery of Phoenician trade in the ninth and tenth centuries, that saw a return to prosperity, and the appearance of real coinage, possibly first in Anatolia with Croesus of Lydia and subsequently with the Greeks and Persians.
In Africa many forms of value store have been used including beads, ingots, ivory, various forms of weapons, livestock, the manilla currency, ochre and other earth oxides, and so on. The manilla rings of West Africa were one of the currencies used from the 15th century onwards to buy and sell slaves. African currency is still notable for its variety, and in many places various forms of barter still apply.
Coinage
These factors led to the shift of the store of value being the metal itself: at first silver, then both silver and gold. Metals were mined, weighed, and stamped into coins. This was to assure the individual taking the coin that he was getting a certain known weight of precious metal. Coins could be counterfeited, but they also created a new unit of account, which helped lead to banking. Archimedes' principle was that the next link in currency occurred: coins could now be easily tested for their fine weight of metal, and thus the value of a coin could be determined, even if it had been shaved, debased or otherwise tampered with (see Numismatics).
In most major economies using coinage, copper, silver and gold formed three tiers of coins. Gold coins were used for large purchases, payment of the military and backing of state activities. Silver coins were used for large, but common, transactions, and as a unit of account for taxes, dues, contracts and fealty, while copper coins represented the coinage of common transaction. This system had been used in ancient India since the time of the Mahajanapadas. In Europe, this system worked through the medieval period because there was virtually no new gold, silver or copper introduced through mining or conquest. Thus the overall ratios of the three coinages remained roughly equivalent.
Era of hard and credit money
In premodern China, the need for credit and for circulating a medium that was less of a burden than exchanging thousands of copper coins led to the introduction of paper money, commonly known today as banknotes. This economic phenomenon was a slow and gradual process that took place from the late Tang Dynasty (618–907) into the Song Dynasty (960–1279). It began as a means for merchants to exchange heavy coinage for receipts of deposit issued as promissory notes from shops of wholesalers, notes that were valid for temporary use in a small regional territory. In the 10th century, the Song Dynasty government began circulating these notes amongst the traders in their monopolized salt industry. The Song government granted several shops the sole right to issue banknotes, and in the early 12th century the government finally took over these shops to produce state-issued currency. Yet the banknotes issued were still regionally-valid and temporary; it was not until the mid 13th century that a standard and uniform government issue of paper money was made into an acceptable nationwide currency. The already widespread methods of woodblock printing and then Bi Sheng's movable type printing by the 11th century was the impetus for the massive production of paper money in premodern China.
At around the same time in the medieval Islamic world, a vigorous monetary economy was created during the 7th–12th centuries on the basis of the expanding levels of circulation of a stable high-value currency (the dinar). Innovations introduced by Muslim economists, traders and merchants include the earliest uses of credit,[1] cheques, promissory notes,[2] savings accounts, transactional accounts, loaning, trusts, exchange rates, the transfer of credit and debt,[3] and banking institutions for loans and deposits.[4]
In Europe paper money was first introduced in Sweden in 1661. Sweden was rich in copper, thus, because of copper's low value, extraordinarily big coins (often weighing several kilograms) had to be made. Because the coin was so big, it was probably more convenient to carry a note stating your possession of such a coin than to carry the coin itself.[citation needed]
The advantages of paper currency were numerous: it reduced transport of gold and silver, and thus lowered the risks; it made loaning gold or silver at interest easier, since the specie (gold or silver) never left the possession of the lender until someone else redeemed the note; and it allowed for a division of currency into credit and specie backed forms. It enabled the sale of stock in joint stock companies, and the redemption of those shares in paper.
However, these advantages held within them disadvantages. First, since a note has no intrinsic value, there was nothing to stop issuing authorities from printing more of it than they had specie to back it with. Second, because it created money that did not exist, it increased inflationary pressures, a fact observed by David Hume in the 18th century. The result is that paper money would often lead to an inflationary bubble, which could collapse if people began demanding hard money, causing the demand for paper notes to fall to zero. The printing of paper money was also associated with wars, and financing of wars, and therefore regarded as part of maintaining a standing army.
For these reasons, paper currency was held in suspicion and hostility in Europe and America. It was also addictive, since the speculative profits of trade and capital creation were quite large. Major nations established mints to print money and mint coins, and branches of their treasury to collect taxes and hold gold and silver stock.
Legal tender era
With the creation of central banks, currency underwent several significant changes. During both the coinage and credit money eras the number of entities which had the ability to coin or print money was quite large. One could, literally, have "a license to print money"; many nobles had the right of coinage. Royal colonial companies, such as the Massachusetts Bay Company or the British East India Company could issue notes of credit—money backed by the promise to pay later, or exchangeable for payments owed to the company itself. This led to continual instability of the value of money. The exposure of coins to debasement and shaving, however, presented the same problem in another form: with each pair of hands a coin passed through, its value grew less.
The solution which evolved beginning in the late 18th century and through the 19th century was the creation of a central monetary authority which had a virtual monopoly on issuing currency, and whose notes had to be accepted for "all debts public and private". The creation of a truly national currency, backed by the government's store of precious metals, and enforced by their military and governmental control over an area was, in its time, extremely controversial. Advocates of the old system of Free Banking repealed central banking laws, or slowed down the adoption of restrictions on local currency. (See Gold standard for a fuller discussion of the creation of a standard gold based currency).
At this time both silver and gold were considered legal tender, and accepted by governments for taxes. However, the instability in the ratio between the two grew over the course of the 19th century, with the increase both in supply of these metals, particularly silver, and of trade. This is called bimetallism and the attempt to create a bimetallic standard where both gold and silver backed currency remained in circulation occupied the efforts of inflationists. Governments at this point could use currency as an instrument of policy, printing paper currency such as the United States Greenback, to pay for military expenditures. They could also set the terms at which they would redeem notes for specie, by limiting the amount of purchase, or the minimum amount that could be redeemed.
By 1900, most of the industrializing nations were on some form of gold standard, with paper notes and silver coins constituting the circulating medium. Governments too followed Gresham's Law: keeping gold and silver paid, but paying out in notes.
Paper money era
A currency needs to satisfy 3 functions to become a true representation of transactions between living beings.
1. Medium of exchange 2. Store of value 3. Delivery of value (energy)
For paper currencies to be valid the issuer should be able to deliver "value / energy" on redemption of currency, otherwise paper currency has no mechanism to satisfy the "3. Delivery of value" function to be real currency. This means that Reserve Banks should have "energy reserves" to be called Reserve Banks.
A banknote (more commonly known as a bill in the United States and Canada) is a type of currency, and commonly used as legal tender in many jurisdictions. With coins, banknotes make up the cash form of all modern money.
Modern currencies
British pounds, Danish kroner, Euros, and Canadian dollars.
To find out which currency is used in a particular country, check list of circulating currencies.
Currently, the International Organization for Standardization has introduced a three-letter system of codes (ISO 4217) to define currency (as opposed to simple names or currency signs), in order to remove the confusion that there are dozens of currencies called the dollar and many called the franc. Even the pound is used in nearly a dozen different countries, all, of course, with wildly differing values. In general, the three-letter code uses the ISO 3166-1 country code for the first two letters and the first letter of the name of the currency (D for dollar, for instance) as the third letter.
Local currencies
In economics, a local currency is a currency not backed by a national government, and intended to trade only in a small area. Advocates such as Jane Jacobs argue that this enables an economically depressed region to pull itself up, by giving the people living there a medium of exchange that they can use to exchange services and locally-produced goods (In a broader sense, this is the original purpose of all money.) Opponents of this concept argue that local currency creates a barrier which can interfere with economies of scale and comparative advantage, and that in some cases they can serve as a means of tax evasion.
Local currencies can also come into being when there is economic turmoil involving the national currency. An example of this is the Argentine economic crisis of 2002 in which IOUs issued by local governments quickly took on some of the characteristics of local currencies.
From Wikipedia, the free encyclopedia
A currency is a unit of exchange, facilitating the transfer of goods and/or services. It is one form of money, where money is anything that serves as a medium of exchange, a store of value, and a standard of value. A currency is the dominant medium of exchange. To facilitate trade between currency zones, there are exchange rates, which are the prices at which currencies (and the goods and services of individual currency zones) can be exchanged against each other. Currencies can be classified as either floating currencies or fixed currencies based on their exchange rate regime. In
common usage, currency sometimes refers to only paper money, as in coins and currency, but this is misleading. Coins and paper money are both forms of currency.
In most cases, each country has monopoly control over the supply and production of its own currency. Member countries of the European Union's Economic and Monetary Union are a notable exception to this rule, as they have ceded control of monetary policy to the European Central Bank.
In cases where a country does have control of its own currency, that control is exercised either by a central bank or by a Ministry of Finance. In either case, the institution that has control of monetary policy is referred to as the monetary authority. Monetary authorities have varying degrees of autonomy from the governments that create them. In the United States, the Federal Reserve System operates without direct interference from the legislative or executive branches. It is important to note that a monetary authority is created and supported by its sponsoring government, so independence can be reduced or revoked by the legislative or executive authority that creates it. However, in practical terms, the revocation of authority is not likely. In almost all Western countries, the monetary authority is largely independent from the government.
Several countries can use the same name, each for their own currency (e.g. Canadian dollars and United States dollars), several countries can use the same currency (e.g. the euro), or a country can declare the currency of another country to be legal tender. For example, Panama and El Salvador have declared U.S. currency to be legal tender, and from 1791–1857, Spanish silver coins were legal tender in the United States. At various times countries have either re-stamped foreign coins, or used currency board issuing one note of currency for each note of a foreign government held, as Ecuador currently does.
Each currency typically has one fractional currency, often valued at 1⁄100 of the main currency: 100 cents = 1 dollar, 100 centimes = 1 franc, 100 pence = 1 pound. Units of 1⁄10 or 1⁄1000 are also common, but some currencies do not have any smaller units. Mauritania and Madagascar are the only remaining countries that do not use the decimal system; instead, the Mauritanian ouguiya is divided into 5 khoums, while the Malagasy ariary is divided into 5 iraimbilanja. However, due to inflation, both fractional units have in practice fallen into disuse.
History
Early currency
The origin of currency is the creation of a circulating medium of exchange based on a unit of account which quickly becomes a store of value. Currency evolved from two basic innovations: the use of counters to assure that shipments arrived with the same goods that were shipped, and later with the use of silver ingots to represent stored value in the form of grain. Both of these developments had occurred by 2000 BC. Originally money was a form of receipting grain stored in temple granaries in ancient Egypt and Mesopotamia.
This first stage of currency, where metals were used to represent stored value, and symbols to represent commodities, formed the basis of trade in the Fertile Crescent for over 1500 years. However, the collapse of the Near Eastern trading system pointed to a flaw: in an era where there was no place that was safe to store value, the value of a circulating medium could only be as sound as the forces that defended that store. Trade could only reach as far as the credibility of that military. By the late Bronze Age, however, a series of international treaties had established safe passage for merchants around the Eastern Mediterranean, spreading from Minoan Crete and Mycenae in the North West to Elam and Bahrein in the South East. Although it is not known what functioned as a currency to facilitate these exchanges, it is thought that ox-hide shaped ingots of copper, produced in Cyprus may have functioned as a currency.
It is thought that the increase in piracy and raiding associated with the Bronze Age collapse, possibly produced by the Peoples of the Sea, brought this trading system to an end. It was only with the recovery of Phoenician trade in the ninth and tenth centuries, that saw a return to prosperity, and the appearance of real coinage, possibly first in Anatolia with Croesus of Lydia and subsequently with the Greeks and Persians.
In Africa many forms of value store have been used including beads, ingots, ivory, various forms of weapons, livestock, the manilla currency, ochre and other earth oxides, and so on. The manilla rings of West Africa were one of the currencies used from the 15th century onwards to buy and sell slaves. African currency is still notable for its variety, and in many places various forms of barter still apply.
Coinage
These factors led to the shift of the store of value being the metal itself: at first silver, then both silver and gold. Metals were mined, weighed, and stamped into coins. This was to assure the individual taking the coin that he was getting a certain known weight of precious metal. Coins could be counterfeited, but they also created a new unit of account, which helped lead to banking. Archimedes' principle was that the next link in currency occurred: coins could now be easily tested for their fine weight of metal, and thus the value of a coin could be determined, even if it had been shaved, debased or otherwise tampered with (see Numismatics).
In most major economies using coinage, copper, silver and gold formed three tiers of coins. Gold coins were used for large purchases, payment of the military and backing of state activities. Silver coins were used for large, but common, transactions, and as a unit of account for taxes, dues, contracts and fealty, while copper coins represented the coinage of common transaction. This system had been used in ancient India since the time of the Mahajanapadas. In Europe, this system worked through the medieval period because there was virtually no new gold, silver or copper introduced through mining or conquest. Thus the overall ratios of the three coinages remained roughly equivalent.
Era of hard and credit money
In premodern China, the need for credit and for circulating a medium that was less of a burden than exchanging thousands of copper coins led to the introduction of paper money, commonly known today as banknotes. This economic phenomenon was a slow and gradual process that took place from the late Tang Dynasty (618–907) into the Song Dynasty (960–1279). It began as a means for merchants to exchange heavy coinage for receipts of deposit issued as promissory notes from shops of wholesalers, notes that were valid for temporary use in a small regional territory. In the 10th century, the Song Dynasty government began circulating these notes amongst the traders in their monopolized salt industry. The Song government granted several shops the sole right to issue banknotes, and in the early 12th century the government finally took over these shops to produce state-issued currency. Yet the banknotes issued were still regionally-valid and temporary; it was not until the mid 13th century that a standard and uniform government issue of paper money was made into an acceptable nationwide currency. The already widespread methods of woodblock printing and then Bi Sheng's movable type printing by the 11th century was the impetus for the massive production of paper money in premodern China.
At around the same time in the medieval Islamic world, a vigorous monetary economy was created during the 7th–12th centuries on the basis of the expanding levels of circulation of a stable high-value currency (the dinar). Innovations introduced by Muslim economists, traders and merchants include the earliest uses of credit,[1] cheques, promissory notes,[2] savings accounts, transactional accounts, loaning, trusts, exchange rates, the transfer of credit and debt,[3] and banking institutions for loans and deposits.[4]
In Europe paper money was first introduced in Sweden in 1661. Sweden was rich in copper, thus, because of copper's low value, extraordinarily big coins (often weighing several kilograms) had to be made. Because the coin was so big, it was probably more convenient to carry a note stating your possession of such a coin than to carry the coin itself.[citation needed]
The advantages of paper currency were numerous: it reduced transport of gold and silver, and thus lowered the risks; it made loaning gold or silver at interest easier, since the specie (gold or silver) never left the possession of the lender until someone else redeemed the note; and it allowed for a division of currency into credit and specie backed forms. It enabled the sale of stock in joint stock companies, and the redemption of those shares in paper.
However, these advantages held within them disadvantages. First, since a note has no intrinsic value, there was nothing to stop issuing authorities from printing more of it than they had specie to back it with. Second, because it created money that did not exist, it increased inflationary pressures, a fact observed by David Hume in the 18th century. The result is that paper money would often lead to an inflationary bubble, which could collapse if people began demanding hard money, causing the demand for paper notes to fall to zero. The printing of paper money was also associated with wars, and financing of wars, and therefore regarded as part of maintaining a standing army.
For these reasons, paper currency was held in suspicion and hostility in Europe and America. It was also addictive, since the speculative profits of trade and capital creation were quite large. Major nations established mints to print money and mint coins, and branches of their treasury to collect taxes and hold gold and silver stock.
Legal tender era
With the creation of central banks, currency underwent several significant changes. During both the coinage and credit money eras the number of entities which had the ability to coin or print money was quite large. One could, literally, have "a license to print money"; many nobles had the right of coinage. Royal colonial companies, such as the Massachusetts Bay Company or the British East India Company could issue notes of credit—money backed by the promise to pay later, or exchangeable for payments owed to the company itself. This led to continual instability of the value of money. The exposure of coins to debasement and shaving, however, presented the same problem in another form: with each pair of hands a coin passed through, its value grew less.
The solution which evolved beginning in the late 18th century and through the 19th century was the creation of a central monetary authority which had a virtual monopoly on issuing currency, and whose notes had to be accepted for "all debts public and private". The creation of a truly national currency, backed by the government's store of precious metals, and enforced by their military and governmental control over an area was, in its time, extremely controversial. Advocates of the old system of Free Banking repealed central banking laws, or slowed down the adoption of restrictions on local currency. (See Gold standard for a fuller discussion of the creation of a standard gold based currency).
At this time both silver and gold were considered legal tender, and accepted by governments for taxes. However, the instability in the ratio between the two grew over the course of the 19th century, with the increase both in supply of these metals, particularly silver, and of trade. This is called bimetallism and the attempt to create a bimetallic standard where both gold and silver backed currency remained in circulation occupied the efforts of inflationists. Governments at this point could use currency as an instrument of policy, printing paper currency such as the United States Greenback, to pay for military expenditures. They could also set the terms at which they would redeem notes for specie, by limiting the amount of purchase, or the minimum amount that could be redeemed.
By 1900, most of the industrializing nations were on some form of gold standard, with paper notes and silver coins constituting the circulating medium. Governments too followed Gresham's Law: keeping gold and silver paid, but paying out in notes.
Paper money era
A currency needs to satisfy 3 functions to become a true representation of transactions between living beings.
1. Medium of exchange 2. Store of value 3. Delivery of value (energy)
For paper currencies to be valid the issuer should be able to deliver "value / energy" on redemption of currency, otherwise paper currency has no mechanism to satisfy the "3. Delivery of value" function to be real currency. This means that Reserve Banks should have "energy reserves" to be called Reserve Banks.
A banknote (more commonly known as a bill in the United States and Canada) is a type of currency, and commonly used as legal tender in many jurisdictions. With coins, banknotes make up the cash form of all modern money.
Modern currencies
British pounds, Danish kroner, Euros, and Canadian dollars.
To find out which currency is used in a particular country, check list of circulating currencies.
Currently, the International Organization for Standardization has introduced a three-letter system of codes (ISO 4217) to define currency (as opposed to simple names or currency signs), in order to remove the confusion that there are dozens of currencies called the dollar and many called the franc. Even the pound is used in nearly a dozen different countries, all, of course, with wildly differing values. In general, the three-letter code uses the ISO 3166-1 country code for the first two letters and the first letter of the name of the currency (D for dollar, for instance) as the third letter.
Local currencies
In economics, a local currency is a currency not backed by a national government, and intended to trade only in a small area. Advocates such as Jane Jacobs argue that this enables an economically depressed region to pull itself up, by giving the people living there a medium of exchange that they can use to exchange services and locally-produced goods (In a broader sense, this is the original purpose of all money.) Opponents of this concept argue that local currency creates a barrier which can interfere with economies of scale and comparative advantage, and that in some cases they can serve as a means of tax evasion.
Local currencies can also come into being when there is economic turmoil involving the national currency. An example of this is the Argentine economic crisis of 2002 in which IOUs issued by local governments quickly took on some of the characteristics of local currencies.
Monday, August 4, 2008
Business structures 101
LLP, LLC, S-corp and C-corp: It's not just alphabet soup! A breakdown of what you need to know, in layman's terms.
By Annalyn Censky
July 30, 2008
(Fortune Small Business) -- What exactly is an LLP? What's the difference between an LLC and a corporation? What about S-corps and C-corps? Sorting through the legal jargon and tax codes defining these business structures can be daunting for entrepreneurs - but picking the right structure for your company brings vital tax benefits and legal flexibility.
LLC or corporation?
There's virtually no reason why a small business should file as a corporation, unless the owners plan to take the business public in the near future, says Carter Bishop, a professor at Suffolk University Law School who helped draft the uniform LLC and LLP laws for several states.
Instead, filing as an LLC, or limited liability company, is usually the best choice.
The major differences between an LLC and a corporation include decision-making flexibility and the type of taxation the business faces, says Mark Patton, an attorney with Lewis and Roca in Tucson, Ariz.
A corporation has to have a board of directors to make decisions according to a formal process. The "board" could technically be one person, but it still needs to exist. An LLC, on the other hand, can set up an operating agreement at the time the business is created, and make decisions more informally.
Common provisions in operating agreements include:
• Who can make decisions on behalf of the LLC? Will all owners manage the company, or will there be one primary manager?
• What are the owners' responsibilities to contribute money to the company?
• When and how will the company income be shared?
• What procedure is required to transfer membership interests in the company?
The second major difference is that an LLC benefits from "pass-through taxation." Pass-through taxation means the company pays no tax on its profits: It's like the company doesn't even exist for federal tax purposes, Bishop says. In fact, if the LLC is a sole proprietorship, the company does not have to file any tax returns. LLCs with more than one member must file a federal tax return, although the LLC itself is not subject to a tax. Earnings pass through to the owners, who then report the income on their own tax returns and pay the tax on their income.
A corporation, on the other hand, must pay federal taxes as an entity; its shareholders are then taxed on any dividends or distributions they receive from the company, in effect allowing some of the company's profits to be taxed twice.
There is an exception to this rule, however, for companies that file under subchapter S of the Internal Revenue Code. Such companies are commonly referred to as "S-corp" entities.
S-corp or C-corp?
The terms "S-corp" and "C-corp" are merely shorthand references for a company's tax status - they're not distinct business entities.
The major tax difference between the two is that an S-corp receives pass-through tax treatment similar to a partnership or LLC, whereas a C-corp (taxed under subchapter C) is required to pay tax on its income as a business entity.
An S-corp's pass-through tax treatment does not come without some limits, however. An S-corp can have only 100 shareholders, each of whom must be an individual. (Certain types of trusts are also eligible.) Other businesses can't be an S-corp shareholder.
"For tax purposes, a small-business owner will probably want to choose either an LLC or an S-corp to obtain pass through tax treatment and to avoid the double taxation of a C-corp," Patton says.
The shareholders of a corporation can obtain subchapter S treatment by filing Form 2553 with the IRS within 75 days of starting operations. If this form is not filed, the corporation is taxed under subchapter C by default.
So then, what's the difference between an LLC and S-corp?
The members of an LLC can agree to share a company's income and absorb its losses disproportionately, whereas S-corp shareholders must share in the company's income in direct proportion to the number of shares they hold.
Even if an S-corp is small and private, it's still subject to corporate formalities. The company will need to hold an annual meeting and file formal reports to its shareholders documenting its decision-making processes on significant corporate matters. An LLC does not need such documentation.
"Between an LLC and an S-corp," Patton says, "the LLC is again the more flexible of the two and can accommodate most business arrangements."
He recommends, however, that small-business owners consult their advisors to determine whether there are additional tax benefits of an S-corp. in their specific situation that might justify incurring the structure's limitations.
Okay, now what about partnerships?
In addition to an LLC or a corporation, there are two types of partnerships a small business may want to consider: a general partnership and a limited partnership.
The first requirement of any partnership is obvious: there must be more than one owner, or "partners" (hence the name). If you're a sole proprietor, opt for an LLC instead.
Partnerships, Bishop says, are typically formed by professionals such as lawyers, architects, accountants and doctors. In some states, such firms are precluded from operating as LLCs; in others, where general partnerships and longstanding law firms predated LLC laws, many organizations opt to retain their existing status.
General partnership and LLPs
In a general partnership, all owners have equal rights to manage the company, regardless of their ownership shares in the company. On the downside, they can also all be equally liable for any mishaps the company runs into, like debt or lawsuits. This is where an LLP, or limited liability partnership, comes into play.
An LLP is merely a certificate a general partnership can obtain to create a liability shield protecting the individual partners, Bishop says. Take, for example, a law firm that has offices in New York and Los Angeles. If a partner in Los Angeles commits malpractice, the partner in New York will not be considered individually liable. Without an LLP certificate, however, the New York partner would not be protected.
Limited partnership and LLLP
A limited partnership structure varies from a general partnership in that not all partners are entitled to participate in managing the business. The general partner or partners actively manage the business, while the limited partners (usually passive investors) do not participate in the day-to-day operations. This type of business structure usually suits real-estate investments.
When it comes to liability in a limited partnership, responsibility follows the management chain: in most actions, the limited partner is not liable, but the general partner is.
In many states, however, a limited partnership can obtain an LLLP certificate, for a limited liability limited partnership. This certificate, Bishop says, works in the same manner as the LLP certificate by protecting the general partners with a liability shield.
An entrepreneur's best choice
In the end, an LLC business structure is the best bet for most small businesses. It's the structure that gives the owners the greatest flexibility. Plus, it automatically includes a liability shield protecting all owners.
For more information on your options, check out the Internal Revenue Service's guide to business structures.
By Annalyn Censky
July 30, 2008
(Fortune Small Business) -- What exactly is an LLP? What's the difference between an LLC and a corporation? What about S-corps and C-corps? Sorting through the legal jargon and tax codes defining these business structures can be daunting for entrepreneurs - but picking the right structure for your company brings vital tax benefits and legal flexibility.
LLC or corporation?
There's virtually no reason why a small business should file as a corporation, unless the owners plan to take the business public in the near future, says Carter Bishop, a professor at Suffolk University Law School who helped draft the uniform LLC and LLP laws for several states.
Instead, filing as an LLC, or limited liability company, is usually the best choice.
The major differences between an LLC and a corporation include decision-making flexibility and the type of taxation the business faces, says Mark Patton, an attorney with Lewis and Roca in Tucson, Ariz.
A corporation has to have a board of directors to make decisions according to a formal process. The "board" could technically be one person, but it still needs to exist. An LLC, on the other hand, can set up an operating agreement at the time the business is created, and make decisions more informally.
Common provisions in operating agreements include:
• Who can make decisions on behalf of the LLC? Will all owners manage the company, or will there be one primary manager?
• What are the owners' responsibilities to contribute money to the company?
• When and how will the company income be shared?
• What procedure is required to transfer membership interests in the company?
The second major difference is that an LLC benefits from "pass-through taxation." Pass-through taxation means the company pays no tax on its profits: It's like the company doesn't even exist for federal tax purposes, Bishop says. In fact, if the LLC is a sole proprietorship, the company does not have to file any tax returns. LLCs with more than one member must file a federal tax return, although the LLC itself is not subject to a tax. Earnings pass through to the owners, who then report the income on their own tax returns and pay the tax on their income.
A corporation, on the other hand, must pay federal taxes as an entity; its shareholders are then taxed on any dividends or distributions they receive from the company, in effect allowing some of the company's profits to be taxed twice.
There is an exception to this rule, however, for companies that file under subchapter S of the Internal Revenue Code. Such companies are commonly referred to as "S-corp" entities.
S-corp or C-corp?
The terms "S-corp" and "C-corp" are merely shorthand references for a company's tax status - they're not distinct business entities.
The major tax difference between the two is that an S-corp receives pass-through tax treatment similar to a partnership or LLC, whereas a C-corp (taxed under subchapter C) is required to pay tax on its income as a business entity.
An S-corp's pass-through tax treatment does not come without some limits, however. An S-corp can have only 100 shareholders, each of whom must be an individual. (Certain types of trusts are also eligible.) Other businesses can't be an S-corp shareholder.
"For tax purposes, a small-business owner will probably want to choose either an LLC or an S-corp to obtain pass through tax treatment and to avoid the double taxation of a C-corp," Patton says.
The shareholders of a corporation can obtain subchapter S treatment by filing Form 2553 with the IRS within 75 days of starting operations. If this form is not filed, the corporation is taxed under subchapter C by default.
So then, what's the difference between an LLC and S-corp?
The members of an LLC can agree to share a company's income and absorb its losses disproportionately, whereas S-corp shareholders must share in the company's income in direct proportion to the number of shares they hold.
Even if an S-corp is small and private, it's still subject to corporate formalities. The company will need to hold an annual meeting and file formal reports to its shareholders documenting its decision-making processes on significant corporate matters. An LLC does not need such documentation.
"Between an LLC and an S-corp," Patton says, "the LLC is again the more flexible of the two and can accommodate most business arrangements."
He recommends, however, that small-business owners consult their advisors to determine whether there are additional tax benefits of an S-corp. in their specific situation that might justify incurring the structure's limitations.
Okay, now what about partnerships?
In addition to an LLC or a corporation, there are two types of partnerships a small business may want to consider: a general partnership and a limited partnership.
The first requirement of any partnership is obvious: there must be more than one owner, or "partners" (hence the name). If you're a sole proprietor, opt for an LLC instead.
Partnerships, Bishop says, are typically formed by professionals such as lawyers, architects, accountants and doctors. In some states, such firms are precluded from operating as LLCs; in others, where general partnerships and longstanding law firms predated LLC laws, many organizations opt to retain their existing status.
General partnership and LLPs
In a general partnership, all owners have equal rights to manage the company, regardless of their ownership shares in the company. On the downside, they can also all be equally liable for any mishaps the company runs into, like debt or lawsuits. This is where an LLP, or limited liability partnership, comes into play.
An LLP is merely a certificate a general partnership can obtain to create a liability shield protecting the individual partners, Bishop says. Take, for example, a law firm that has offices in New York and Los Angeles. If a partner in Los Angeles commits malpractice, the partner in New York will not be considered individually liable. Without an LLP certificate, however, the New York partner would not be protected.
Limited partnership and LLLP
A limited partnership structure varies from a general partnership in that not all partners are entitled to participate in managing the business. The general partner or partners actively manage the business, while the limited partners (usually passive investors) do not participate in the day-to-day operations. This type of business structure usually suits real-estate investments.
When it comes to liability in a limited partnership, responsibility follows the management chain: in most actions, the limited partner is not liable, but the general partner is.
In many states, however, a limited partnership can obtain an LLLP certificate, for a limited liability limited partnership. This certificate, Bishop says, works in the same manner as the LLP certificate by protecting the general partners with a liability shield.
An entrepreneur's best choice
In the end, an LLC business structure is the best bet for most small businesses. It's the structure that gives the owners the greatest flexibility. Plus, it automatically includes a liability shield protecting all owners.
For more information on your options, check out the Internal Revenue Service's guide to business structures.
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