Before deciding on the right business structure, you should first understand the tax implications and the legal protections that are available for new companies. Once you have a clear picture of the pros and cons of each, you can make a decision about which business structure is right for your venture.
Tax Implications
In order to avoid incurring unnecessary taxes, new businesses must choose their business structure carefully. This decision has tax and legal ramifications, and can affect ongoing costs, liability, and business team configuration. Tax considerations are especially important during tax season, when businesses must account for a variety of taxes, and how it impacts your personal return.
Legal Protections
State laws vary on the legal protections offered by the entity you choose. In most cases, a sole proprietorship provides the least protection. The personal assets of a sole proprietor are generally not protected from business creditors. Furthermore, any existing liabilities will continue after the sale or dissolution of the business. In such circumstances, seeking input from a business attorney is a great idea. Here are some factors to consider when deciding between sole proprietorships and LLCs.
Cost
Even the simplest of businesses incurs costs associated with business formation. For example, even the most informal businesses must open a business checking account and apply for business licenses and permits. By outsourcing these tasks, the costs of business formation are often significantly lower than the cost of hiring an attorney and filling out endless paperwork. We can help.
8 Legal Requirements to Start a Business
Whether you want to start a small business or expand your existing operation, there are many legal requirements for business formation. There are many different types of companies, and if you’re unsure about what is required, it is a good idea to contact an attorney to help you get started. Listed below are some important considerations that you should keep in mind.
FreshBooks offers these 8 legal requirements to consider before unlocking your business’ “front door.”
- Choose the business structure / formation
- Register the business name, including its entity name, trademark, DBA, and domain name
- Apply for a federal tax ID number
- Determine if you need a state tax ID number
- Obtain business permits and licenses
- Getting business insurance
- Open a business bank account
- Consult with professionals, like lawyers and CPAs to ensure you’re doing thing correctly
Registered Agent
Designating a registered agent during business formation is one of the most crucial steps in creating a legal entity. The registered agent is responsible for receiving and handling all official correspondence on your behalf. The registered agent’s primary role is to receive service of process on your behalf and handle any government correspondence. Most businesses choose to use a third-party registered agent service to ensure compliance while keeping personal information private.
Congratulations on your decision to start a business. Before you open your actual or virtual doors, reach out to us to help you decide what type of business formation you should create.
Additional Resources
S Corp or LLC – Which makes the most sense for my startup?