10 Steps to Form Your Business
You’ve taken the plunge and started your own business. Congratulations! This stage can bring a whirlwind of emotion, including—optimism, excitement, anxiety, and confusion. We get it. It’s perfectly normal to feel overwhelmed at this stage. Let us help take away some of this angst so you can focus your creative entrepreneurial spirit on the magic that often comes with new beginnings. Here, we’ve created a road map of ten digestible steps.
Step 01 | Choose a Name
Have fun with the naming process! Brainstorm. Make a running list of potential business names, and recognize the process— the perfect name will not magically come to you over night, so be patient. Think of ideas, symbols, sounds and images that you want your business name to invoke. Once you’ve narrowed it down, ask friends, family and potential customers what they think of your top names, and what associations these names invoke.
As you come up with a list of possible names, you’ll want to do a preliminary search as to whether the domain name is available and also whether other businesses operate under a similar name and sell similar goods or provide similar services in your geographic region. This is the beginning of what is known as clearing your trademark, trademark clearance simply means you’ve taken the steps to ensure your business can use your brand name or mark without infringing on someone else’s trademark rights in the mark. There are many layers to the trademark clearance process, it starts with a preliminary search and hopefully ends with a successful registration of your mark with the USPTO.
- 3 Tips for Naming your Business
- How to Get That Coveted Social Media Handle
- Trademark 101- Protect Your Brand
- 3 Steps to Register your Trademark
Step 02| Finance Your Business
Evaluate your financial needs, and research funding sources, if necessary. For more information on the financing stage, read our article Raising Money For Your Startup Business.
Step 03 | Settle on Structure: LLC or Corporation?
Decide which business model will work best for your company—LLC or corporation. To learn the key differences between these business models, read our article Should Your New Business be an LLC or a Corporation?. For more options check out The Corporate Form: Lots to Choose From and Unpacking the Benefit Corporation.
Once you’ve decided on your entity’s legal structure, file the appropriate documents at the federal, state and local level. It goes without saying that we are here to support you with this process!
Step 04 | Register your Fictitious Business Name (FBN), if applicable
If your legal name matches your business name you can skip this step—if you are doing business under a name different from your legal name you’ll need to register your fictitious business name (FBN), in some states referred to as “doing business as” (DBA). Your legal name is your official business name, found on your articles of incorporation or organization. In California, you must register your FBN at the county level, typically with the county clerk’s office. Each county differs in filing requirements and fees, so be sure to call or Google your county clerk’s office, or reach out to us to handle your DBA application for you. Most counties require you to publish your FBN statement in a local publication to adequately register. Typically, your FBN must be renewed every five years.
Step 05 | Obtain Local Tax Certificate
You may be wondering—more taxes? Really? Unfortunately, yes. In addition to the IRS and California’s Franchise Tax Board (which charges a minimum annual $800 fee), your local government also wants a cut of your business income. Localities tax businesses on criteria such as net profit, gross income, number of employees, total payroll, number of vehicles, number of machines, and sometimes even seating capacity. Most cities categorize businesses and use different tax structures for each category. For instance, businesses within one category may pay a flat annual fee, while others pay a tax rate dependent upon gross receipts. Some cities also tax businesses based on activity, such as holding a live performance event. As above, we are here to help.
Step 06 | Open a Business Bank Account
Create and maintain a bank account strictly separate from your personal accounts. This is important if you ever get sued. If a company cannot pay the legal judgment entered against it, a court may “pierce the corporate veil.” In plain English this means the court can collect money directly from the shareholders’ and members’ personal assets if it finds the company disregarded corporate formalities. One major way to disregard these corporate formalities is to commingle your personal funds with the company’s funds. So just don’t.
As far as selecting a bank or credit union goes, consider your options before you default to where you bank for your personal accounts. Even though it can be convenient to stick to one bank, other banks may offer better features for small businesses. You should look at the differences in online banking features, fees, interest, overdraft protection, and minimum balance requirements.
Step 07 | Obtain Business Permits and Licenses
The permits and licenses you need will vary greatly depending on the type of business. For instance, if you sell retail goods in the state, you’ll need to obtain a state seller’s permit and collect state sales tax. You’ll also need to comply with local business regulations and zoning laws, as well as federal and state regulations. In California, Cal Gold provides a convenient way to look up the federal, state, and local permits and licenses you need based on your county and business type.
Step 08 | Reach out to an Insurance Broker
Businesses manage risk, in part, through insurance policies. The insurance market provides businesses with lots of options. With that being said, you don’t want to over-insure, instead you want to strike the right balance—obtain maximum protection without paying for policies for every conceivable risk.
Two common and useful policy types are property insurance and liability insurance. Property insurance covers your business when fire, theft, or disaster strikes. Insurance companies provide several types of property insurance policies. For example, cheaper policies may cover the business premises, but not the business assets kept there. Liability insurance, typically known as a “commercial general liability” (CGL) policy, will cover damages if someone is injured on your property and your business must pay damages for the accident. Personal injury, product liability, and automobile insurance are other types of liability insurance. Specialized insurance policies also exist for employment practices, business interruption, and malpractice.
We’ve only scratched the surface on business insurance. We suggest you find an insurance broker—someone who helps you figure out the best deal and the best policy for your business venture. Look for a broker experienced in your industry and ensure he or she understands how you plan to operate your business.
Step 09 | Hire a Tax Professional
Find a tax professional to help you implement a proper tax plan for your business. The complexity of your business and your tax needs will dictate the type of tax professional you will need. A bookkeeper can pay bills and track expenses and income, where as a CPA (certified public accountant) can help you plan your taxes, and prepare and submit your returns.
Step 10 | Understand Employer Obligations
Employers must comply with several legal, tax and bureaucratic requirements when they hire employees to help operate their business. So first off, make sure you need employees before you hire one. Could an independent contractor do the work for you instead? On that note, make sure you understand the difference between an employee and an independent contractor. The IRS notoriously penalizes businesses when they incorrectly pay a person as an independent contractor when he or she qualifies as an employee. The myriad of duties an employer must comply with are beyond the scope of this article, but luckily we’ve dedicated several other articles to these issues, including:
- What to Know When Hiring an Independent Contractor
- What to Know When Hiring an Employee
- Hiring and Firing Legal Tips for Startups
- Why Every Employer Should Use Employee Job Descriptions
- Have You Properly Classified Your Employees?
All done with these 10 steps? Well we have good news and bad news. The good news is that you’re well on your way toward entrepreneurial bliss. The bad news is that these numerous federal, state and local agencies don’t just go away once you’ve formed your business. In fact, each year your business must comply with tax, legal, and employment regulations. Don’t worry, we’ve got you covered there too. Take a break and celebrate your newly formed business. When you’re ready, read our article here on annual requirements for for-profit entities.
By: Jenna Macek – 10/28/16
Disclaimer: Although this article may be considered advertising under applicable law and ethical rules, the information in this article is presented for informational purposes only. Nothing herein should be taken as legal advice and this content does not form an attorney-client relationship. If you would like further information, Wilkinson Mazzeo would love to hear from you, so please feel free to reach out with any questions!