Through thick and through thin, you're gonna go through it together.
When I was a child, I had an imaginary friend. Now that I’m an adult, I have an artificial one … I’m starting off this month’s column with that statement not to spark an inquiry into my mental health, but to answer the most common question I’ve received since I took over my drugstore, namely, “Where do you start?”
Remember my column from a few months back, the one that pointed out how the corporate structure of the giant chains made it possible for them to put massive amounts of controlled substances onto the streets with ease and escape with a penalty far less than the one that would have been incurred by an actual human being responsible for the exact same outcome?
Well, it may surprise you to learn that the first thing I did when I went into business for myself was to set up a corporation, an “artificial person,” which legally owns my store.
My corporation won’t be issuing shares on the New York Stock Exchange anytime soon, and I doubt that it will ever be able to employ an army of lobbyists to roam the halls of Capitol Hill advocating for its interests, but having an artificial self does offer some advantages for the small business owner. For starters, you can pay yourself as little as possible.
You read that right. Before you are tempted again to question my mental health, let me explain that as the sole shareholder, as well as president, CEO, treasurer, and secretary of my little S-corp. (Not to mention chief janitor and lightbulb-changer), I’ll be compensated in two different ways.
First, I’ll make a salary that was negotiated with my head of human resources, who also happens to be me. Second, as holder of all my corporation’s shares, I’ll be entitled to whatever profits come rolling in. Take a look at what you pay in taxes on your salary vs. how federal and state government treats corporate profits, and chances are you’ll see why it might not always pay to be a really hard-nosed negotiator when it comes to setting a salary rate.
There may be times when it comes in handy for an artificial person to be legally responsible for your business affairs.
When I was deciding how I wanted to structure my business, my lawyer told me about case he was familiar with, that of a pharmacist who had set up his store as a sole proprietorship. He was subject to a routine third-party audit, which found some claims that were disallowed. The pharmacist didn’t dispute the claims, and he intended to pay the amount in question, but for whatever reason, he was negligent in sending in the money. Interest accumulated, and then interest on top on interest, until the pharmacist was looking at losing his house as well as every other asset he owned, because he was personally responsible for everything the business did.
Of course I’ll be making every effort to stay on top of my bills, but hearing that story made me glad my car is registered under my name. I love my car so much I gave it a name, which I guess means maybe I still do have an imaginary friend.
If you’re at the point where I was a year ago, looking to cut your link to the chains that weigh down your ability to practice the profession the way you were trained, your first step just might be to create an artificial friend to stand beside you as you start your journey.
Don’t expect any politicians to fall over themselves granting you favors, the way so many do when a big-box retailer comes to town. Nonetheless, there are advantages, not the least of them that stock certificate from your own company, which looks pretty good in a frame on your office wall.
What to do, though, with any imaginary friends you still have, may be something to discuss with your doctor.