Steps involved in forming a business entity
Are you planning to form a business entity? Then this post is for you! The regulation and rules governing how to form business entities differ by state. Also, the businesses are affected by the applicable laws and federal taxes. To make sure you have accurate and updated information, it’s recommended that you talk to a professional tax consultant.
Here are the steps involved in forming a business entity:
- Choose a name
Picking a unique name for your business can be hard. For sole proprietorship, the business might be the owner’s name, or a fictional name can be picked. It’s essential to first search your county and state to make sure another company isn’t already using the name. You can do this by doing an online search for the name. Every state offers a business name directory, to form a business it is necessary to know if the business entity of your choosing is not previously registered.
- Choose a legal structure
Defining the proper legal structure can be hard. There are numerous things to consider, and each state provides different consequences and benefits for different business structures you can create. Some states charge yearly fees and even additional taxes for specific businesses. Typically, you need to consider your business requirements, investor needs, and the degree of liability protection needed. Then, you can choose to form a business as a sole proprietorship, LLC company, and partnership or S corporation.
- Choose a location
A key consideration in forming a business is finding out if you require a physical location, and if you do, where you will establish it. You need to take enough time to consider this aspect since it can largely affect your sales. Based on your chosen location, you might need to get additional permits, business licenses, or zoning clearance.
Note that every state has specific regulations and laws for different businesses. Therefore, you’ll need all the guidelines in your state. You might be needed to file articles of incorporation and draft bylaws for your company. This is the perfect time to create a business plan that highlights your business and sets forth long-term plans and policies.
- File all the necessary documentation
Once you’ve chosen the type of business entity, you can file documents with your state and register your company. You might need to get business permits, licenses and zoning clearance, and also other approval prerequisites. You might need to call your local tax commission. Most states necessitate specific business entities to prepare and submit articles of organization, operating agreement and partnership agreement. Other form submissions require extra steps like getting an Employer Identification Number.
- Setting up financing and taxes
There are numerous financial considerations that business owners should ponder. It’s important to keep company properties and accounting separate from the owners’ personal accounting. This will help to prove that a separate entity exists. So, you need to set up a business bank account.
