Taxes? Legal Liability? Growth Options? The Formalities of Forming a Business

by Jill Foster on August 31, 2009


Guest post by Shana Glickfield, regular guest contributor to Women Grow Business and Founder of DC Concierge. Effective just recently, Shana’s company directs the online community for NextGenWeb, the blog of USTelecom (a broadband association). Shana can be reached at www.twitter.com/dcconcierge.

Looking first at legal and tax steps
Before you start reaping the benefits of having a business, like generating income and taking tax deductions, you need to set the record straight with the authorities. Yes, that means formally incorporating with the government. This is such a critical step because it will ultimately define your business as far as taxes, legal liability, growth options, and more.

If you’re wondering whether to incorporate at all, take a look at this recent posting by Startup Company Lawyer for important reasons to consider it.

And then, follow these three simple steps:

Step 1 – Do some research
You will likely be deciding among the following business entities; sole proprietorship, partnership, limited liability company (LLC), S-Corp, and C-Corp. The IRS website provides a good description of each,

…however, meeting with a legal or accounting professional that specializes in small businesses will be well worth the time and money.

Again, the implications of this decision will affect many aspects of your business over the long term, so it’s not a decision to be taken lightly.

Step 2 – File your forms
Each state has different forms to fill out and file once you’ve decided on an entity. Most state websites have business centers with additional tax, licensing and general information, as well as the forms to download. Filing will likely require a fee of around $100 (but consider this a business start-up cost, which is then tax-deductible) and Articles of Incorporation, which is just like a formal mission statement.

This is also the point at which you should formalize any partnership or investor agreements.

Although most forms will only require the names of partners to be listed, it’s best to have all income and loss arrangements in place (and in writing) before the business transactions that follow incorporating take place.

Step 3 – Separate yourself from your business
To enjoy the perks of being a business without any trouble from the IRS, it’s essential to act like a business entity!

What does this entail?

Make sure that your business transactions are separate from your personal ones. To do this, you’ll want to use a separate business name (even if just, say, Shana Glickfield Consulting LLC) in your business transactions, such as email, invoicing, and public appearances.

Furthermore, you’ll want to set up a business bank account. Most banks will be eager to work with you to establish an account that is right for you. Again, make sure to use your business name on the account and use the corresponding debit/credit card in the business transactions that you’ll later claim as deductions.

A note about your new business online
It’s also easy to set up a Web presence for your business, even if your business is not Web-based. Use a template of a blogging platform to post general information. Or, if the website or blog is integral to your business, consider splurging on a professional.

And a few personal tips

  • Employee agreements: If you are currently employed elsewhere [in addition to starting your own company], read your employee agreement to see if forming a business is an option for you. And always keep your side business resources separate from your day job.
  • Your professional partners: Do short phone or in-person interviews with potential legal and accounting professionals. This will likely turn into a long-term and more involved relationship as your business grows, so you’ll want someone you feel comfortable with!
  • Find model Articles to reference: Ask a friend or fellow entrepreneur in your state to share their Articles of Incorporation so that you have a model to work from.

Questions to you
Are you considering next steps for launching your business? What else would you like to know? Or if you’ve started a business already, what helped you make these types of decisions?

More from:
Shana Glickfield and her ongoing series at Women Grow Business, on starting a new company.

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