If opportunity doesn’t knock, build a door. Milton Berle
Once you have discussed the different business structures with your CPA, lawyer, and made the right choice for you, it is time to start the paperwork.
A CPA and lawyer can take care of the paperwork and legal filings or you can do it yourself. It really depends on your funding options, time, and your comfort-level with the formation process. If after researching local, county, and state requirements you are not feeling confident (and funding is available), hire a CPA and lawyer to help.
The requirements, steps, and filing process is different for most of the structures. I found the Nolo books extremely helpful as a do-it-yourself resource during the formation and early management of each company. The books and resources are available for each state to make the process a bit easier and answer your questions.
1st – Name the Business. Consider the type of business, target audience, and message the business conveys. For instance, a law firm called “Lawyers for Dummies” may not attract the right audience. I’ll post more about naming a business in the coming days.
2nd – Select a Business Structure. Based on the type of business, advice from a CPA and/or lawyer, and your management commitment select an appropriate structure.
3rd – Start the Paperwork Process — Remember, all cities, counties, and states have different requirements. Some are more onerous than others. You will visit:
City website where the business is located
County Clerk website for the county the business is located
Secretary of State where business is located
IRS website for federal tax filing requirements
Sole Proprietorship – As described in an earlier post this is the easiest business structure to form and maintain. If you are operating business from your home check with your homeowners association (if applicable) and file necessary paperwork. Most cities require a business license so you will file for this as well. Check with your county clerk for business requirements. Most will require a Fictitious Business Statement filed every 2-3 years. Finally, file with your state and IRS as an employer if the business with have employees (you are not considered an employee).
General Partnership — The same process as a sole proprietorship, however, hiring a lawyer to develop a Partnership Agreement before beginning business is a wise step. As with a sole proprietorship, partners are not employees.
**Start creating a Partnership Agreement. It lays the groundwork for how the partnership functions.
LLC – The LLC process is a little different. File Articles of Organization (a very short document) with the state in which the business is located. A Registered Agent must be named as the person within the state to receive any legal notifications. Filing in a state other than the one you live? No worries, you can pay an agency within your filing state to act as the Registered Agent. Pay fees associated with filing in the state and securing a Registered Agent (if necessary).
**Start creating or complete an Operating Agreement (great SBA.gov information). This important document is the foundation to the LLC.
Don’t forget the federal government. File for an Employer Identification Number — here is the IRS link. This number is different from a social security number and necessary for all tax filings. Proceed with all permits and licenses within the state, county, and city.
S-Corporation — The process for an S-Corporation is the same as a C-Corporation with an added step – the IRS tax classification as an S-Corporation. The IRS requires the corporation be formed first — then apply for S-Corp. status.
Now, you can file for S Corporation status. This link is the PDF IRS form 2553 Election by a Small Business Corporation. Once this is done you can continue with all applicable state, county, and city regulations and requirements.
C-Corporation —You may incorporate in any state but the location state may require registration too. Check with individual states regarding C-Corporation requirements. Some states tax corporations; others do not. Other regulations and rules will help determine which state to file. I have filed in California (the business location) and Wyoming. California has more rules, paperwork, and tax requirements. The Wyoming corporation is required to file as a Foreign Entity in California (our location) every year and pay a minimum corporation income tax. While Wyoming does not tax corporations and has the least regulations and requirements, these requirements were not avoided in the business location state. For Wyoming I use a reputable and experienced Registered Agent service – your lawyer may recommend a service.
At the same time, file with the IRS for the Employer Identification Number. Here is an SBA link for state tax filing requirements; such as employer’s etc. Once registered, file for any licenses or permits within the county and city.
Finally, if you are selling taxable goods or services file for a Resale License with your state (Franchise Tax Board). Your business may be required to collect local and state sales tax, depending upon the state your business is located or conducts business.
It is a lot of information but with some education and research anyone can file to legally form a company. Seek help and advice from reliable sources when you are unsure of the next step.
Have faith in yourself and your ideas. Your business is an expression of your passion so let if fly!
In the next post we’ll talk about naming your business. That should be fun!