Much has been written about incorporating a new business, including advice on how to incorporate and what business structure to pick. However, I have found that new business owners can have just as many questions after incorporating or forming a limited liability company (LLC).
As you can imagine, there are some essential differences between running a corporation and running a sole proprietorship, and it’s important to get all your legal ducks in a row as early as possible.
If you have recently incorporated or formed an LLC, here are seven items to check off your list.
1. Get an Employer Identification Number (EIN) from the IRS.
A corporation or LLC is a separate entity and needs its own EIN from the IRS. This is true whether you plan on hiring any employees or not. The EIN, much like a Social Security Number for individuals, is how the IRS tracks your business’s activities. This should be one of your first steps after forming an LLC. Without an EIN, you won’t be able to open a bank account for your business or file your business’s tax returns.
Tip: If you already had an EIN for your business when it was operating as a sole proprietorship or partnership, you’ll need to get a new ID number for your corporation. You can’t transfer the number from one business entity to another.
2. Apply for your business licenses.
Forming a corporation or LLC forms the legal foundation for your business — it’s what turns your business into a legal entity. But you still need to get a business license in order to legally operate your business. Contact your local county office or city hall to find out what kinds of permits and licenses are necessary for your business type. Failure to do so can result in fines or you can even be forced to shut down your business altogether.
3. Meet with a tax advisor.
While this step isn’t mandatory, it’s a good idea. A brief meeting with a tax advisor can give you valuable insight into how you should file your taxes as a corporation or LLC. You can discuss whether you should elect S Corporation tax treatment from the IRS as well as what additional deductions are now available to you.
4. Open a business bank account.
After you have an EIN, you can open a bank account for your business. This allows you to accept checks and payments in your business’s name. In addition, you’re legally required to keep your personal and business finances separated once you incorporate or form an LLC. If you already had a business bank account for your sole proprietorship, you will need to close that account and open a new bank account under the new corporation.
At this point, it may also be a good idea to open a credit card for your business. This helps streamline your recordkeeping for business expenses, as well as helps start building credit history for your business.
5. File a Doing Business As (DBA).
Most businesses operate under several variations of their official company name. In order to legally do this, you need to file a DBA to notify the public that you’re operating under these names. For example, let’s say your official company name is “Example Company, Inc.” but you usually use a less formal name like “Example Company.” You’ll need to file a DBA for “Example Company.” One tip: Don’t file for a DBA until you have formed your corporation or LLC so the DBAs are under the corporation.
6. Protect your name with a trademark.
When you create a corporation or LLC, your name is protected in your state (or more specifically, no other business can file as a corporation or LLC in the same state). For some businesses, this is enough brand protection. Others choose to register a trademark for their company name in order to legally protect it in all 50 states.
7. Understand what you need to do to stay compliant.
One of the chief reasons to incorporate or form an LLC is to limit your personal liability. However, if you fail to keep your business in good standing, then you can lose this liability protection. Make sure you understand exactly what’s needed to keep your business compliant each year. Typically, this involves filing an annual report with your state each year, keeping up with your business federal and state taxes, and keeping your personal and business finances separate. Corporations will also need to hold an annual shareholder’s meeting.
Forming an LLC or corporation is the important first step to formalizing your new business. Best wishes on your new venture, and don’t forget to follow up with your other legal obligations. They’re simple steps and will keep your business legal and protected for years to come.
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