1. Consult CPA to determine which type of entity is best
2. File Articles of Organization with the state’s secretary of state or business filing agency in the state where your business is located. What’s included in the articles of organization?
- Your entity name and address
- The purpose of the entity i.e. a brief description of your product or service
- Effective date that you will start the entity
- Name and address of the registered agent: a person or entity that accepts mail and legal papers on behalf of your company.
- Name and signature of the organizer: this is the person filing the articles of organization. They do not need to be the owner of the business.
The price to file your articles of organization may vary based on your location, but typically this costs falls anywhere from $50 to $200 in most states. After submitting your Articles of Organization, you will get a certificate of formation back from the state, along with a copy of your articles of organization.
3. Create an Operating Agreement
- This agreement provides an organizational and structural blueprint for your new entity. It contains information about the rights and responsibilities of each business owner, the amount of money or assets each owner has contributed and voting and buy-out procedures. An operating agreement is a legal contract that you are obligated to follow, so it’s best to have the help of a lawyer in drafting it.
4. Apply for an EIN
- To apply for an EIN:
- Go to IRS.Gov and choose the “Apply for an Employer ID Number” and select [Select: Sole Proprietor, Partnership, Corporation, or LLC]. From here, you will enter the company’s name and address along with your name and address.
- Be careful as Googling this offers many different options that cost money. Applying for an EIN online is free!
- To Elect S-Corp status:
- Please reach out to your accountant to help with this filing. Form 2553 must be filed properly to ensure that the IRS accepts it.
5. Set up Checking Account & Credit Card in Entity Name
- Once you have your SS4 Letter (the pdf that the IRS gives you), you can open up a business bank and credit card account. We recommend keeping only business transactions on these accounts.
- Treat your business finances separately from your personal finances. One of the main benefits of setting up an entity is personal liability protection for all members. If your business is sued or owes a debt, the claimants are limited to recovering out of your company’s assets. However, your personal assets are safe only if you take steps to maintain financial separation between your business and personal life. The best way to do this is by opening a separate business bank account and business credit card that you use only for business purposes.
6. Rather than pay quarterly estimated payments, consider setting up payroll.
7. Track Filing Dates with Secretary of State on an Annual Basis
- Many states require entities to file an annual report and pay an annual tax or fee. You want to ensure that you are complying with the annual filing requirements.
8. Have regular meetings with your accountant to ensure that things are being handled correctly.