Small Business Series?
Welcome to, what I hope will be, and ongoing series of blogs that may help you start your own business. These small business steps will be from firsthand experience, and a lot of research. This first blog post is about the formation of a business as a legal entity that is authorized to conduct such business. The process isn’t overly complicated, but every city and state has their own requirements that you may not be aware of. Be sure to check the end of this post for links to various helpful web pages.
So, you want to start your own business?
For starters, that is awesome, and congratulations. You are taking the initial steps to being your own small business owner, as I have recently done. I learned many things during my hours and hours of research. Allow me to help point some things out that you may be missing in your own research.
1) Seek Advice
This is definitely the first thing you should do before fully committing to a small business startup. Consult with business professionals for various tips and tricks about “how to make it” from people who have been through the struggle. Some individuals to reach out to would be an accountant, attorney, financial adviser, marketing expert, and someone that specializes in the field you are planning to enter. Without getting some insight from others, you could be putting yourself into an unshakable market that will lead nowhere. Furthermore, if you don’t have something to outshine your competition, chances are you won’t make it.
2) Formation of your business entity
To start, you will need to ensure that you’re following the naming guidelines for whatever state you plan to form your business in. Restricted words such as Bank, Attorney, or University in your business name will require additional paperwork and licenses. Prohibited words are ones that may cause confusion between your business and a federal or state agency such as Secret Service, Treasury, CIA, et cetera.
Afterwards, you may need to file a creation document with your Secretary of State. There are different types of business entities, and each has positive and negative aspects.
- Sole Proprietorship: an extremely common form of business organization. It is the easiest to form, and leaves complete control of the organization to the owner. However, the owner is personally responsible for all financial obligations the organization has. If someone seeks legal action against the business, they can target personal assets that aren’t related to the business.
- Partnership: this is similar to a Sole Proprietorship, but the burden is split between all members of the partnership.
- Corporation: this is a legal entity created to conduct legal business. The entity itself handles all of the responsibilities of the organization, instead of passing the burden to the founders or members. However, a downside is that the Corporation itself is subject to taxes and regulations, extensive record keeping needs, and high cost to form.
- Limited Liability Company (LLC): this is a hybrid of a partnership and a corporation. Most noteworthy is that profits and losses get passed through the business to the owners without taxation while shielding them from personal liability.
Be sure to do the research on the various types of business entities. More detailed information for business types can be found on this Entrepreneur.com blog.
2.5) Registered Agent?
Some states, such as Missouri, require your business to nominate a Registered Agent. This person is responsible for sending and receiving legal papers on behalf of your business entity. Generally, a registered agent must be a resident of your state, or a member of a corporation that is authorized to transact business within your state. An individual within the company may be your registered agent, including yourself. Check out this article on LegalZoom for more information on Registered Agents.
The easiest step throughout the tax process is applying for a Federal Employer Identification Number (EIN). You can do so at this link any time of day and receive your EIN quickly. There is no fee associated with your EIN application.
The hardest step throughout the tax process will be ensuring you have all of your state tax ID’s and numbers. I am in Missouri, therefore, I had to apply for a Withholding Tax number and a MO Unemployment Tax account. There are various other taxes that you may have to apply to charge and/or pay for such as sales tax, vendor’s use, consumer’s, tire/battery fee’s, or a Corporate Income/Franchise tax.
This is entirely dependent on what type of business you will be conducting. What follows are a few business types that may require a special permit.
- General business license: some cities will require that your business have a license to operate within their borders. You can contact your cities business license department to find out if you will need one. Starting a business from your home could become problematic based on the local zoning laws.
- Fire Department permit: if your business will be using flammable materials, or if your business location is open to the public, you may be subject to routine inspections from the fire department due to safety concerns.
- Sign Permit: your city may have an ordinance restricting the size, lighting, colors, or type of sign you plan to post in front of your business.
- State Licenses: people in certain occupations may require a certificate from a state examination before being able to conduct business. Some common occupations that require a state permit are plumbers, electricians, doctors, lawyers and barbers.
Now that you’ve handled the basics to start your own business, it’s time to get to work. Also, be sure to use word of mouth, social media, and giveaways to try and ramp up activity!
If you’re in the market for some tips and tricks for your launch phase, keep an eye out for our next blog.
- Federal Employer Identification Number Application: https://sa.www4.irs.gov/modiein/individual/index.jsp
- Federal law on naming your business: https://www.law.cornell.edu/uscode/text/18/709
- U.S. Small Business Administration: https://www.sba.gov/
If you have any questions or comments about this article, feel free to post below and we can have a chat.