Ignite Your Entrepreneurial Journey
I don’t know about you, but when I pay for something I like to get some value. Did you know that paying an annual subscription to start and manage a company (LLC, S corporation, C corporation, etc) is EASY money for the service provider? First, you pay all the fees. Second, states typically require annual or biannial fillings. These filings literally take minutes. Yet you are paying $50, $100, or $200 per year.
Whether you are starting a new business or buying an existing one, there are several important steps to take. At a minimum, you will need to work with the Secretary of State and Department of Revenue (for taxation and other purposes) in your state, as well as the Internal Revenue Service (IRS) at the federal level. If your business will operate in multiple states—either through physical locations or employees—you may need to register your company in each relevant state.
Your Company Name
The first step is choosing your company name. Most states provide an easy-to-use Business Entity Search tool on their websites. Use this tool to confirm that your desired name is not already in use. Additionally, be mindful of trademarks and copyrights—avoid selecting a name that is similar to a trademarked or copyrighted one, or to that of a potential competitor.
Creating Your Company
Once you’ve chosen a name, you can either reserve it or proceed to create your company through your state’s Secretary of State website. You will need a physical address in the state and a registered agent. If you live in the state but haven’t secured a business location yet, you can act as your own registered agent and use your home address for registration purposes.
Creating a company involves additional steps. First, decide on the type of company you want to form. Most states allow you to choose between Limited Liability Companies (LLCs) and Corporations. This choice determines whether you will file Articles of Organization (for LLCs) or Articles of Incorporation (for Corporations). These documents can typically be found through a quick internet search or on your state’s website.
How Will You Be Taxed?
The next step is determining how your company will be taxed at the federal level. Options include being taxed as a corporation, sole proprietorship, partnership, or S corporation.
- Sole Proprietorship: Taxes are filed through the owner’s individual or joint tax return.
- Corporations (C Corps): File Form 1120, with a filing deadline of April 15. Corporations are taxed as separate entities from their owners, leading to “double taxation” (the corporation pays taxes on its profits, and shareholders are taxed on dividends).
- Partnerships: File Form 1065 and issue a Schedule K-1 to each partner, detailing their share of income, deductions, and credits. Partners then report this information on their personal tax returns. The filing deadline for partnerships is March 15.
- S Corporations: File Form 1120-S, with a filing deadline of March 15. Like partnerships, S corps issue a Schedule K-1 to shareholders, who report their income on their personal tax returns.
The advantages of each tax entity vary. While I have personally chosen S corporation status for all companies I’ve formed, your situation may differ. Consult with your accountant to determine the tax advantages and your attorney to assess liability considerations for each entity type.
State tax regulations also differ. For example, my experience in Minnesota and Iowa reveals similarities, while Texas operates differently. Texas has no corporate income tax but imposes a franchise tax based on the previous year’s revenue. Again, consult your tax advisor or accountant for guidance specific to your location and business.
Federal Tax Identification
You probably have heard this called an EIN, or Employer Identification Number. Use this link or go to www.irs.gov and search for EIN. Please do not click one of the many links on Google. If the web address is not www.irs.gov, it is either a scam or someone trying to get easy money from you.
Why get an EIN? A couple of reasons. First, an EIN is required if you will have employees. Second, if you do not have an EIN you will be required to use your SSN, or Social Security Number, to identify your business to the IRS and other entities. Thus, getting an EIN helps to protect your identity.
Beneficial Ownership Information Report Registration
BOIR is required, by law. You have 90 days to file, and the fines are up to $591 per day for not filing. The site is www.fincen.gov, or the link. Again, watch for imposters. It is easy to do the filing directly on the Fincen site. The filing is free, and there is an extensive FAQ section.
Conclusion
Starting a company is not overly complicated, yet advertisements often promise to “Start your LLC for only $199/year.” If you have money to spare, you can use such services, but remember that state fees are charged separately. In most cases, these services simply file forms you could complete yourself on your state’s website. They often don’t handle federal tax elections, and their ongoing fees may not provide much value. Spend your money wisely!
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