This is a fundamental start-up business decision and once chosen is hard to undo. Your options typically are a corporation, an S corporation, an LLC, partnership (general and limited) and a sole proprietorship. Lots of tax implications involved with your choice here but take it from me the liability drawbacks of partnerships and proprietorship’s are so high that I would say in most cases they should be avoided.
a. Determine the state you plan to legally start your business in. This does not necessarily need to be the state you actually operate the business. I’ll get into NEXUS implications in a later article but here is a hint – LLC’s and S Corps formed in states like Nevada and Delaware have considerable advantages over most states.
One thing to keep in mind are the fees for creation of entities in Nevada and Delaware. In recent years they have increased their formation fees as well as the dreaded annual report fee typically provided by your registered agent. These can be $400+ for formation and $350/year for annual reports from your registered agent.
Here is a little-known fact. Wyoming is an alternative state to start a new business. The laws are similar to Nevada and Delaware but both the registration and annual fees are just a fraction of other popular states. It’s important to remember your business does not need to actually be located in the state where your sales occur. In most cases it is best to choose an entity state based on the protections you are afforded.
b. You will need a federal EIN or Employer Identification Number in most cases to get a bank account. This can help in other ways as you can use it instead of other identification in some cases such as your SSN. Here is a link to the IRS to get your EIN: https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online
c. Some businesses require a license or licenses. Federal, state, county and local all might require you to have a license. Trade organizations can assist with advice on this as well as the Small Business Administration or SBA. They now have a website that can often assist with this at: https://www.sba.gov/business-guide/launch-your-business/apply-licenses-and-permits
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