To build an empire, you must set up an entity. But, forming a business can involve a lot of complex processes.
You will also have to consider a lot of factors, including taxes and entity structure. You will also need to secure licenses, permits, and registrations.
If you wish to set up a business entity, this article can help you make the process easier. Find out how you can start to build a business empire below.
Different Business Entities You Can Form
Limited Liability Company (LLC)
A Limited Liability Company (LLC) is an entity led by members. Each state has different regulations when it comes to forming an LLC. So, check state laws if you want to form an LLC in your state.
There is no maximum number of members. Most states allow single-member LLCs or those with only one member.
Most states also don’t restrict ownership. This means that LLC members may include individuals, corporations, or other LLCs. Foreign entities can also become members of an LLC.
Partnerships
A partnership is a company with two or more people who do trade or business.
In a partnership company, each person contributes money, labor, property, or skill. Every partner has shares in the profits and losses of the company.
Corporations
A corporation conducts business and distributes profits to shareholders.
When forming a corporation, prospective shareholders trade property, money, or both. The contributions will fund the corporation’s capital stock.
In a corporation, the company pays taxes when it makes earnings. Earnings distributed as dividends to shareholders are also taxable.
S Corporations
S corporations pass income, losses, deductions, and credits to shareholders. The shareholders report the income and losses on their personal tax returns.
To achieve an S corporation status, a corporation must:
- Be a domestic corporation.
- Be certain trusts, individuals, and estates.
- May not be partnerships, corporations, or non-resident shareholders.
- Have no more than 100 shareholders.
- Have only one class of stock.
- Not be an ineligible corporation.
Sole Proprietorships
A sole proprietor is a person who owns an unincorporated business by themselves.
But, if you’re the only member of an LLC, you’re not a sole proprietor if you choose to treat the LLC as a corporation.
Steps to Form a Business Entity
The rules and regulations about forming a business entity vary by state. These businesses are also affected by federal taxes and certain laws.
So, consult a registered agent or a professional tax advisor. This way, you have the most accurate and up-to-date information.
To help you get started, here are the basic steps to starting a business:
1. Choose a Name
First, decide on the name of your new business entity. Then, look up the name you want to use. Make sure that no other business is using it.
You may also choose to operate under another business name by filing a Doing Business As (DBA).
2. Pick a Business Entity
Determining the proper legal structure can be challenging. Consider the advantages and disadvantages of each entity.
Each state offers different benefits and consequences for the various business entities.
To know the best business entity for you, consider your business needs. Take note of your investor requirements and the desired level of liability protection.
You can choose to set up any of the following entities:
- LLC
- Sole proprietorship
- Partnership
- Corporation
- S corporation
3. Pick a Location
Another essential factor to think about is where to establish your new business. Depending on the location you choose, you may also need extra permits or zoning clearance. Some states may require a city business license when you are forming a business.
Each state has specific laws for various businesses. You also need to be aware of the pros and cons of setting up in the state you want.
Do your research and learn the basic steps of setting up an LLC in states like Delaware or Wyoming. While doing this, you can compare the pros and cons of forming a Wyoming vs. Delaware LLC.
Then, prepare a business plan that outlines your company’s needs. You can highlight policy and long-term plans to help you decide on a location.
4. File Paperwork
Once you have decided on a name, a business entity, and a location, you can now file with your state. During this step, you are registering your business in the state.
You may need to secure an Employer ID Number (EIN) from the Internal Revenue Service (IRS). You will need to submit an SS4 form to secure an EIN for tax and identification purposes.
You may also need to pay various fees to register your business. These fees can be for licenses and permits, which vary by state.
You will also have to file annual tax returns as a business owner to report income.
5. Set Up Financing and Taxes
As a business owner, you have several financial considerations to keep in mind.
Keep your business assets separate from personal assets. This way, you can prove that a separate entity exists.
This means that you will have to set up a company bank account.
You have to pay estimated taxes on federal, state, and local taxes. You may also need to pay self-employment taxes.
Remember to pay taxes on time to avoid hefty fines and penalties.
6. Look For Employees
The EIN is important for identifying your business and setting up employee payroll. Your employees must have their payroll taxes withheld. They must pay these taxes regularly.
There are a lot of factors to consider when forming a business entity. Due to the complex nature of the process, it is best to consult an attorney.
With an attorney, you will be sure not to miss any legal or tax requirements. Doing this can help your new business become legal and stay legal over time. Soon enough, you can build the business empire you have always wanted.
