Josiah Mackenzie

For the most part, I haven’t really been involved in the stock market for the last four months. I was involved in the Cedarville University Stock Challenge — so I stayed up to date on trends — but I have not used my own money recently.

Today, because of some Sharebuilder incentives (commision free trade), I made three additions to my portfolio:

Sirius Satellite Radio (SIRI) — I believe satellite radio will be huge in the future, and this value priced stock has nowhere to go but up. I’ve been wanting to purchase this for a while, and finally went ahead and bought a sizable number of shares.

New Dragon Asia (NWD) — Even though this stock has lost alot of money recently, I believe their core business — rice and noodle products — will do well in the future. From what I’ve learned, the company has a good distribution network and capable management team.

American Eagle Outfitters (AEOS) — AE looks like a value stock to me. It has dropped $10 this year, but they have a good eye for fashion trends, and should do well in 2006.

Every year, before the new year begins, I take some time to plan what direction I’ll take in business. I compile a list of business startup ideas, then select 3-4 that I plan on doing.

This year, one of those ideas was a discount luxury clothing company. I would buy the clothes in bulk from wholesalers, then distribute them.

To start, I’m going to focus on Men’s polo shirts from companies like Lacoste, Polo Ralph Lauren, and Abercrombie & Fitch. If that is successful, I’ll expand as needed. I registered HalfPricePolos.com yesterday, and hope to launch the site this spring. I have already begun ordering shipments of polos, and plan on acquiring a sufficient stock before I open shop.

I think I’m going to enjoy this. Fashion is something I enjoy, and I have a very unique marketing campaign planned. And of course I definitely wouldn’t mind wearing more Lacoste.

When most people hear the word “corporation”, they paint a mental picture of large corporate offices, high-paid executives, and millions of dollars in revenue. In reality, a corporation is simply an artificial entity created by the state for managing business. In fact, the majority of corporations are comprised of four or less people. I would like to suggest that an individual entrepreneur can benefit tremendously from operating under a corporate structure.

There are three main benefits for incorporating.

The first is that the owner is protected from personal liability. Under a sole proprietorship, you are personally liable for all debts and lawsuits that come against your business. Just one lawsuit could not only shut down your entire business, but also take away your home and personal assets. According to Robert Allen, the average entrepreneur is sued five times during his career — one of those being a “devastating” lawsuit where they lose everything. The good news is that this high level of risk can be avoided. By operating under a corporation the worst that could happen is that you lose your company’s assets.

A second benefit to incorporating is that many of your operating expenses will be tax-deductible. Sometimes, you can arrange the business expenses to benefit you. For example, you may choose to rent office space in your own home, which gives you an additional source of income. Many other expenses are also deductible, such as travel, meals, health insurance, and education.

Raising capital for your business is the third main reason for incorporating. Investors are easier to attract with you operate under a corporate “umbrella”. Also, it is easy to transfer shares of the company to the investor.

The actual process of forming the corporation is relatively easy. Among other things, you file the Articles of Incorporation with your Secretary of State. This is a simple form, and there is usually no need to hire a lawyer for this. However, that is outside the scope of this article, so I’ll move on.

After forming your corporation, it is important to maintain certain legal formalities. Failure to do so could result in the IRS and courts no longer recognizing a distinction between your corporation and you as a person. When this happens, it is known as “piercing the veil,” and makes the benefits of using a corporation useless. You will be held personally liable for all debts and lawsuits your business incurs.

Several strategies can be used to avoid the government “piercing the veil.”

The first is to properly maintain your corporation according to state and federal law. This involves creating proper documentation at the beginning (corporate bylaws), and then recording all future company action by keeping minutes of all meetings held and actions taken by the shareholders or board of directors. Though it is tempting to skip this step since the corporation only consists of one person, you, it is essential that you keep these records.

Second, there can be no mingling of personal and corporate assets. Do not use your company bank account to pay your personal expenses. Even though you may be your company’s sole directory, shareholder, president, and CEO, the company is a separate entity, and you must treat it as such.

Finally, you must be very careful to follow tax code as you make your business deductions. It is highly advisable to contact an accountant for this. While it is fairly easy to incorporate your company without a lawyer, it is essential that you work closely with an experienced tax accountant in order to walk the thin line between maximizing deductions and staying within the law.

As long as you follow the obvious legal and ethical steps in running your corporation, you should be able to prevent a court from piercing your corporate veil. The trouble comes when you fail to view your corporation as a separate legal entity, and abuse the system for personal gain.

A corporation can be the ideal environment under which an entrepreneur can operate. Though incorporating and maintaining legal formalities can be a difficult process, the benefits you receive are well worth it. Using a corporation allows the entrepreneur to raise investment capital, save money on taxes, and most importantly, protect himself from liability.

Google’s stock has been challenging my buy-and-hold philosophy lately. After purchasing at $287, the stock’s value has climbed to the $420+ in just a few months. Impressive growth, but I’m beginning to worry that it is overvalued. If I place a stop-loss order in the $400 range, it could easily sell with me getting a nice profit. But what are Google’s long-term prospects? Will it bounce back with even higher prices? Something to think about….

Today I filed the Articles of Incorporation for my new personal corporation, Josiah Mackenzie & Company. I considered filing in Michigan or Nevada, but since I live in Ohio now, it seemed easier to just do it here. Some of the reasons for incorporating were to obtain financing for future projects, and to write off business-related expenses.

I’m currently writing an essay called “Personal Corporations for the Entrepreneur” in my Business Law class, and hope to share some of that information here soon. It is facinating stuff!