I am the type of person who just wants to do it. An idea comes to me and I want to get it done. I don’t want to sit around, discuss and think about it all day, I want to execute it. Most entrepreneurs share this sense of urgency—the need to execute. It is a huge part of what makes your business successful. However, what the best entrepreneurs are interested in is when you get it done, that you’re getting it done right. Getting it done right starts you off with a solid legal foundation that will save you a great deal of headache and unnecessary expense.
The first step is considering what kind of entity you want to form. In a LLC vs Sole Proprietorship article, I discussed the commonly available forms: (1) Sole proprietorship, (2) Partnership, (3) LLC, and (4) Corporation. There are several others as well, including the Limited Liability partnership, the Professional Corporation, Professional LLC, etc. Researching these and knowing the legal limitations of each is key. Hiring an attorney is significantly helpful, but it is also possible to create a legal entity on your own.
Once you have formed your entity, you should obtain your employer identification number (EIN). It is simple, free, it takes minutes, and it can even be done online at irs.gov. When you start your business, you will want to obtain a bank account specifically for your business to avoid co-mingling funds—something that if you do engage in, will make accounting for your business more difficult. To open a bank account for your business, you will need an EIN number. If you don’t have one then you will be using your social security number to identify your business, thus exposing yourself to greater risk of identity theft. You would also be shifting things closer to sole proprietorship status even if you have created an entity. Don’t use your social security number, make sure instead that the business gets an EIN and has its own identity.
Now that you have your EIN, get your tax information together; your city, county, or state may require you to collect sales tax. You have obligations to the IRS, especially if you have employees. You may have personal property taxes or real property taxes. You need to know them because otherwise, you can get your business entity revoked, receive fines, or even get criminal charges.
Check if your city, county, state, or the federal government requires you to have any business license or permit—or any other licenses or permits for that matter. Penalties for operating without required licenses or permits can go well beyond fines and could possibly become criminal charges. You can often find this information with a quick internet search. Some applications may be simple enough to create on your own. Hiring an attorney can help expedite the process and ensure that it is successful the first time, ultimately saving you time and money all while allowing you to go about your business more quickly.
In a nutshell, you want to take the basic steps, particularly the legal ones to (1) minimize risk, (2) avoid penalties (fines and criminal charges), (3) save time, and (4) be professional. Doing it right the first time will not cost you much time or money, if anything, it will save you these things.
Disclaimer: The information and materials on this blog are provided for general informational purposes only and are not intended to be legal advice. The law changes frequently and varies from jurisdiction to jurisdiction. Being general in nature, the information and materials provided may not apply to any specific factual and/or legal set of circumstances. No attorney-client relationship is formed nor should any such relationship be implied. Nothing on this blog is intended to substitute for the advice of an attorney licensed in your jurisdiction. If you require legal advice, please consult with a competent attorney licensed to practice in your jurisdiction.