Be certain you select the right form of business to operate under
If you decided on the product and or service you plan to sell congratulations. Before you can get started you must select the right form of business for you. Then you must register your company with the federal and state governments at a minimum. If you do not, you can’t honestly say you have a business. Do not serve your first customer until you do so. There will be mandatory state taxes you must pay, and licensing usually occurs at the state level. Saafenet business consulting services will be able to help you.
You may have developed your idea and chosen your best guess of the niche you plan to sell to. You may have even developed a business plan. All those things cited above should be done before you begin to invest time and money into a business endeavor. Your first impressions about getting started could have material flaws that could be difficult to correct once you’re open. performing those steps will help identify potential problems that could be difficult to correct later.
If you will operate a single owner or a husband/wife owned business, avoid the selection of sole proprietorships or partnerships. Both these types of business will expose you to unlimited liability. In the case of a legal judgment, if liquidation of your company assets is insufficient, your personal assets are at risk. The selection of a limited liability company (LLC) may offer you some protection. But, limited liability companies are a state selection, unrecognized by the federal government. Even if you plan to organize as an LLC, it will be considered a disregarded entity at the federal level. Unless you incorporate, which will be described below, there are circumstances where your personal assets could still be at risk.
Though you thought the selection of the form of business you operate under was an insignificant decision, it requires serious thought
The Saafenet Corporation strongly encourages you to incorporate your business. It can offer you several advantages once you start to operate. Corporations may be formed in foreign states. It would not matter in what state you formed a proprietorship or a partnership. You would still have unlimited liability. Incorporating in several states offers significant tax advantages to corporations. If you plan to incorporate in a foreign state you must have a resident agent. A resident agent is a person or an entity physically located in the state in which you plan to incorporate. Most states require you have one if your business does business elsewhere.
To avoid liability for your state designation as an LLC, they may be incorporated as well. At the federal level, to avoid being classified as a disregarded entity it’s best to incorporate a business you plan to make an LLC. LLCs, however, cannot be subchapter C corporations because the stockholders may not be anonymous. C corporation shareholders may be anonymous. This would require you apply to the IRS for an S corporation election.
Selecting the right form of business requires the consideration of multiple factors. The Saafenet Corporation is prepared to bail you out, if you find you get stuck. You can prepare the paperwork necessary free of charge when you apply for an EIN number at the IRS website. State filings for corporations or limited liability entities will be slightly more complex as articles of incorporation and bylaws or operating agreements will be required. Use our Bizdoks website if you fear having problems.
To understand why we discourage the use of proprietorships or partnerships read the next post.