When starting their business, many people will begin as a sole proprietorship. As your business slowly begins to grow (or maybe takes off quickly), you may find that you need more legal protections than just what is offered by a sole proprietorship. When you get to that point, it's time for you to incorporate your business. The first thing you should know when you're incorporating your business is that each state has different filing procedures. So, depending on where you are, you want to investigate what are the procedure is in your state. The best way to do this is to work with an accountant or lawyer who is knowledgeable about the process of setting up your business.
There are entire books written on the process of setting up your business, and in fact, you could click here to download The Business Lifecycle, a free report that takes you through these steps. But for today's blog, let's look at some basic steps you should take when setting up your business.
Step 1: Choosing a Name
When you're setting up your business, you may have had a name in mind all along. However, you may find that other people have already taken that name. So as you're beginning your business and you want to incorporate, I always suggest that you have at least three possibilities for a name for your business, and these possibilities should be easy to pronounce.
Once you've got your names down, you should check your state for name availability. This is usually easily done by searching through the Department of State Corporations Division website. You should also check with the USPTO (the federal patent and trademark office), and see if there are any trademarks associated with the names that you have chosen.
And finally, also look at domain names to see if the domain that you would like to use for your business is available.
Step 2: Choosing the Owners
When you're starting a business, you may or may not have partners. If you're going to do it all alone, then this step is taken care of. However, if you're going to have partners, you need to consider how the ownership of the company is going to be divided up. If you're going to be owners with other members of your family, you need to keep in mind that there can be family dynamics that come into play. If you start a business with your older brother, who's always been the boss of you, chances are when you start operating a business together. It's going to be the same. You need to be prepared for that family dynamic in the office as well as at the Thanksgiving table.
If your business requires a professional license, like an architect, engineer, or lawyer, you need to consider whether or not non-licensed individuals can have an ownership interest in your company.
Step 3: Choose the Form of your Business
This is the most important step where you work with a lawyer, and in my experience, it's also important to talk to an accountant. Some common types of businesses you can choose are ,
- Sole proprietorship
- Business trusts (which are a more advanced planning tool)
- Professional companies.
Step 4: Assembling Your Team
Now that you've figured out your name, your owners, and your form, it's time to get your TEAM (Trusted Experts, Authorities and Mentors) ready. I'm a big proponent of having a set of professionals around who can help you out with your business. In order to get that team ready, I recommend that you have a professional who can take care of:
- A lawyer
- Financial advisor
- Marketing, and
Step 5: Filing With Your State
Once you've been through these steps you're all set to get started. One of the things you'll need to do is choose which state you would like to file your business in. Keep in mind that if you're located in Minnesota, and you want to file for a company in Delaware, you will still need to file locally with Minnesota as well. So you're creating the need for two sets of filings. When you're choosing a state, you may also consider the rules that that state has regarding things like LLC for that many people will consider Delaware, Wyoming, and New Mexico for their LLC, you'll need to choose an agent, who is the person, the state will treat as the point person for any paperwork that comes from the state.
You'll also need to create articles of incorporation. Now I recommend working with a corporate service, who will put these documents together for you and file them with the state for you, they will often also give you a black binder that will then have all your corporate records in one place. And then finally, if your accountant doesn't do it for you, you'll want to get an employee identification number from the federal government.
Note: these steps may sound like they're very involved and take a while, but the fact is you can usually get the company incorporated and formed within about 24 hours. If you're using a service, you may pay extra for the rush service. But generally, if you're just starting a business and you don't have a big "time crunch," you can get all of this turned around in about a week or so.
You May Also Like
- Sole Proprietor or Incorporated Business? Which Should I Be?
- Judgments Against People in Other States
- Operating Agreements and Voluntary Dissolutions
If it's time to incorporate your business, or if you've got more questions about the process, let's set up a Legal Strategy Session to discuss the options for you and your business.