Forming a Business – A Quick Overview of What You Have To Do
As a business attorney, as well as small business owner, I have experience in forming and running businesses. Here are some of the things that I’ve learned almost every business must do in order to sell services or manufacture goods while in compliance with State and federal law.
- Choose an entity type – This can be very complicated and the entity type you chose has ramifications, which mainly deal with taxes and recordkeeping. Depending on the type of operations and ownership structure the company will have it can form a business as a partnership, limited liability company (LLC), limited liability partnership, corporation, s-corporation, of even a nonprofit corporation.
- After choosing the proper entity type, the corresponding incorporation documents (articles of incorporation for a nonprofit or corporation, or articles of organization for an LLC) must be filed/registered with the Secretary of State or a department thereof. Partnerships do not file corporate documents, but they do file election documents with the IRS.
- The owners of the business should then adopt appropriate governing documents which will dictate the rules by which the business will operate; these documents contain many different terms but include items such as notice, voting rights, management decisions, tax allocations, share structure, and much more. Hiring a business lawyer to draft your business’ governing documents is better than being subject to your State’s default set of governing rules.
- After the business receives its incorporation documents from the Secretary of State, it must make resolutions to file for a federal tax identification number, open bank accounts, apply with the appropriate state tax entities, apply for appropriate municipal business licenses, and more.
- The business will also have to obtain rent, which typically involves entering into a commercial lease for a period of time which can vary from as little as one month to several years.
- The business will need to obtain insurance; obtaining proper insurance coverage is essential in that it protects the business owners should uncontrollable events occur that make the business liable. If the business has employees it will need workers compensation insurance.
Although each of these items is presented briefly, each could be an article in itself. Completing this process can also take lots of time; for example it can take several weeks to receive filed incorporation documents from the Secretary of State. Business attorneys can help with large portions of this process and leave the business owner time to actually run the business itself; lawyers are also useful because a mistake in the incorporation documents can delay a business for weeks and even months.
Being registered with the Secretary of State along with having a bank account, a tax identification number, insurance, and proper licenses is what a business needs to operate. From that point on it requires the actual implementation of business itself (setting up equipment, or purchasing inventory, or whatever else the business does). And then of course, pay the taxes.