Protect yourself by ensuring you have the proper paperwork. Otherwise, your business and you will be the same. This means your personal assets are at risk if your business gets sued or can’t pay debts owed. Starting a business isn’t the hard part, sustaining the business is what becomes a journey.
You’ve been advised how you should run your business. Or even more common, the type of business or services you should provide.
How many people have given you advice on how to protect your business?
Probably none, once the ball starts running, that’s it. Your mind is focused on your customers and scaling your business.
One of your very first decisions shouldn’t be the product that you’re selling. It should be incorporation, what type of legal business are you operating?
Each business offers its own benefits but there is one that will be best for your business model. If you do your research you’ll have no problems incorporating your business.
When you incorporate you limit your
liability to the assets of the business.
Sole proprietorship
Sole proprietorship is how most businesses of opportunity starts. Under a sole proprietorship, one person is liable for the company’s profits and debts. As a freelancer, this would be ideal. As your business scales, it could become an issue. This entity does not offer protection to you, the owner, because personal and professional assets are not separated.
Partnership
Two or more people own a partnership. There are two types, a general partnership, and a limited partnership. In a general partnership, everythings shared equally. In a limited partnership, only one partner has control of its operation, while the other persons receive only part of the profit. A partnership would fit well for a family business. Gains and losses The decision making and gains and losses are sh.
Limited liability company (LLC)
A limited liability company allows partners or shareholders to limit their personal liabilities. Under this entity, owners personal liability is protected for debts incurred by the business, as long as they have not acted in an illegal, unethical, or irresponsible manner.
An LLC gives you flexibility in taxes. You can choose to file as a ‘disregarded entity’ which means your LLC’s income is treated as your personal income. Otherwise, you can file as ‘corporate taxation,’ your business will be taxed at a lower rate for the first $75,000 of income.
Corporation
A corporation establishes your business as an entity that is entirely separate from its owners. It has its individual legal rights, apart from all owners. The corporation can sue, be sued, own/sell property, and sell the rights of ownership as stocks. There are several types of corporations:
C Corporation
A C Corporation is taxed at the corporate and personal level. If the corporation pays out dividends to shareholders, the individuals will pay individual income. The C Corporation continues to exist as owners change and its members are replaced.
S Corporation
An S Corporation gives your business the benefit of incorporation while being taxed as a partnership. The corporation may pass income directly to shareholders, avoiding double taxation.
Nonprofit Corporation
Nonprofit corporations are formed to carry out charitable, educational, religious, literary, or scientific purposes.
Other
Closed Corporations and B Corporations are also an option although not as standard.
Cooperative
A Cooperative is owned by the people it serves. The members vote on the organization’s mission and direction, and it’s offerings benefit the members.
Best business structure
The best business structure is one
that meets your specific needs.
If you are looking for something simple, a sole proprietorship will meet your needs as long as you don’t mind paying the taxes with your personal income.
Partnerships require a signed agreement to define business roles and the percentage of profits. LLCs and Corporations have reporting requirements with the state and federal governments.
If you’re still unsure, we can help you find the business that works best with your situation.
Once you are sure of the structure, it’s time to name your business. When choosing a name, keep two things in mind.
1. Do a trademark search, use USPTO.gov to see if you can get a trademark or service mark for the name.
2. You should also search the Secretary of State’s records to make sure the name isn’t taken. The Secretary of State may not allow you to register if it’s similar to an existing name.
Articles of incorporation
To become an official entity, you have to register your business with the government. You will need what’s called, ‘articles of incorporation.’ This document includes your business name, purpose, structure, stock details, and other identifying information for your company.
You can register your business in your legal name, a fictitious name which is ‘Doing business as,’ or the name you came up with using the tips above.
Once you register your business, you may need to get a state withholding number also known as an Employer Identification Number (EIN) if you will have any employees. A federal tax ID number is not required if you are a sole proprietorship or an LLC with no employees.
A federal tax ID number is also known as the employer identification number. This unique 9 digit number is assigned by the IRS to business entities operating in the United States.
The state withholding number is entered on state tax forms used to report state income taxes withheld from employee’s pay.
We recommend applying for one to keep your business and personal taxes separate. It will also save you time if you wish to hire employees down the road.
Depending on your business structure, you may need to file forms for your federal and state income tax obligations. A list of forms each type of structure requires can be found at SBA.GOV. You should also check state-specific tax requirements.
Additional licenses and permits may be needed depending on the business entity you incorporate.
Depending on your location, there could be different requirements all the from the state to the city. You can check city business license requirements online if you’re unsure send us a message. A city business license is a legal document that gives you the right to operate a business in your city.
Having an expert can help you save the headache of which structure you need. Our experts can find a business that meets your needs.
Separate Accounts
One of the smartest moves you can make for your business is opening a business account and keeping your personal transactions separate.
The more you mix business and personal,
the more likely you will be audited, and the
more likely you’ll make a mistake with your finances.
You need a business bank account for a few reasons; to keep your business and personal finances separate, keep an honest picture of your cash flow, and it is needed to be considered for a business loan.
Regardless of your business structure, this amazing tip will help you keep track of your businesses progress. Keeping your accounts separate makes calculating tax easier. There are legal ways to pay yourself and to collect income from your business.
Avoid treating your business like a bank.
What bank account should I open?
You will know which bank will meet your needs the best but ask yourself these questions first:
Do I need a physical bank or can I conduct the majority of it online?
If you’re collecting cash then you’ll want to look for a physical bank that you can deposit that money into safely.
What type of fees will I incur?
Some accounts have a monthly service fee or likewise a minimum deposit fee. $10 a month might not seem like much, it’s $10 your business might of spent elsewhere. Fees can also be associated with a wire transfer. If your bank does charge you a service fee, ask if they allow you to waive the fee.
Does it allow unlimited free transactions?
If your business bank account can’t pay for inventory, payroll, or other costs of business you risk running into legal trouble. Make sure the bank account you choose allows for unlimited free transactions.
Business plan
A business plan is your business strategy for growth, explained in writing. It can be a determining factor in outside or third-party financing. A business plan is a detailed description of the structure, projections, recruiting, management plan, and more.
A business plan helps you and others figure out where your business is going, how it will overcome obstacles and the financial costs.
A well detailed business plan will include competitors information, products, and financial comparisons.
A business plan answers all questions your investors should have regarding any road bumps, obstacles, and opportunities.
As defined by Entrepreneur, “A written document describing the nature of the business, the sales, and marketing strategy, and the financial background, and containing a projected profit and loss statement.”
A business plan is not needed for incorporation.
Insurance
It’s not a matter of if you need insurance, it’s what ‘type’ of insurance do you need? Insurance should be purchased before you officially start.
Businesses are advised to purchase general liability (GL) insurance. General liability covers property damage, bodily injury and personal injury to yourself or anyone else.
If you have employees, you will need to purchase workers compensation and unemployment insurance. Workers compensation provides wage replacement and medical benefits to employees injured on the job in exchange for relinquishment of the employee’s right to sue the employer.
Unemployment insurance is financed through taxes paid by the employer. The insurance program provides unemployment benefits to eligible workers who are unemployed through reasons outside of their personal fault. Employees may be required to meet other requirements of State laws.
If you run a service business, you’ll want professional liability insurance. It will cover you if you do something wrong or neglect to do something that should have been done while operating your business.
Coverage can vary depending on your industry and location.
California homeowner policy may not cover earthquake damage, because the area is prone to earthquakes. Which means you’ll need to purchase a separate earthquake policy.
Texas homeowner policy may not cover flood damage, because the area is prone to floods. Which means you’ll need to purchase a separate flood policy.
What are the risks if you don’t have car insurance? Nothing, as long as you’re not pulled over. Nothing, if you can avoid getting in a car accident. Having insurance protects you from the risks.
Changes to your current business
If you move to another state, do you need to register in that state?
Yes, unless your state allows domestications. Domestication moves your articles of incorporation to another state.
What if you want to change your business name?
You can contact your local government office to get the appropriate paperwork. You can cancel the original DBA and file for a new one.
Do I need new EIN because I changed the name?
Changing the name of your business does not require you to obtain a new EIN.
Most common problems when incorporating a business
The biggest problem when new owners are incorporating a business is bad customer service, most companies are equipped to handle the easy pitches but not the curveballs. As soon as payments received they cut the cord. At Anguiano Consulting, we have helped thousands of business owners successfully incorporate over the past twenty years. There isn’t anything we can’t handle and we are satisfied knowing we can advise a business structure that meets their needs.
Let us walk you through the necessary paperwork.
The second biggest problem is hidden fees. The clickbait states, “$49 for incorporation.” However at the end of your transaction your total ends up being almost 10 times your initial amount. We provide you with the pricing before you decide to move forward. Your time is important and we appreciate you.
Lastly, lack of knowledge. Most companies incorporate specifically in a single state, the one they operate in. At Anguiano Consulting, we’ve established owners in all 50 states and continually do so on a regular basis.
Will I need additional services?
You will need additional services such as payroll, if you have employees. Accounting to assist with your financial projections and growth. Ultimately you will need more than just the incorporation but it’s important to understand which services you need and why.
We can help you determine what your business absolutely needs.
We cover the difference between accounting and bookkeeping in this article.
Summary
If you’re serious about owning your own business, hiring a professional will save you a mountain of mistakes. Do your research to avoid the common problems when incorporating a business, otherwise you’ll end up paying extra.
Owning a business has many benefits that you should take advantage of as the owner. If these benefits haven’t been properly explained, you’ll miss opportunities you otherwise wouldn’t see.
You don’t need legal advice to incorporate unless you’re incorporating in South Carolina (South Carolina requires an attorney’s signature). You can complete and file your articles of incorporation by yourself in every other state.
This information is free and at your fingertips but is often presented in a different language. If you need an expert to walk you through this process, Anguiano Consulting is perfect for you. Our goal is to set up you up as efficiently and quickly as possible while giving you the necessary preparations for your future. The best part is, you communicate with us and we take action for you.
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