No one ever told me that you have to do all these things before you start your business... well you don't have to at first. Some people like to make a small investment, test their product with real customers and make some money to prove they have a viable business before incorporating.
When you are ready, I outlined my COMPLETE dummy proof process on how I got started. Even though these links are specific to California (where I live now), the steps and process to which you go about incorporating are typically the same, but please note that your state might have a different terminology for the same thing. For example, some states call the Articles of Incorporation, the Certificate of Formation. Also, different state office can be called something different, ie Secretary of State, State Department of Taxation or Corporation Commission. Before I start, read my disclaimer below.
Disclaimer: This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any action.
Check out this podcast where I interviewed Nellie Akalp from Corpnet where she shared some of her experience with incorporation.
Here is what I'm going over, step by step and the specific order you need to do them in because there are instances where you need to wait for one organization to approve and provide you an id before you can continue to the next.
- Find your Secretary of State
- Search for Company Name
- Prepare Articles of Incorporation or Organization
- File for DBA (optional)
- Obtain EIN
- File for an S-Election with the IRS
- Seller's Permit
- Business License
- Annual Filings
Steps for Incorporating or Organization Your Entity
Find Your Secretary of State
If you have any questions on incorporating in the state of California, go to http://www.sos.ca.gov/business-programs/business-entities/contact. Every state should have their own Secretary of State website for you to find more information on entities and incorporating. If you need help, just give them a call and ask away, they are usually very helpful.
Search For Company Name, make sure it's not taken, https://businesssearch.sos.ca.gov/. You don't want to fill out all the paperwork to have it returned because you didn't take 2 minutes to make sure the name is not taken.
Prepare Articles of Incorporation or Organization
Prepare Articles of Organization with your Secretary of State. Based on your entity, you'll need to select the appropriate forms, http://www.sos.ca.gov/business-programs/business-entities/forms. Please note that when you speak to different state/city entities, the proper terms to use with a LLC is organization and forming. For corporations, it's called incorporating. Just a little FYI here to help facilitate your conversation. I confused the heck out of them when I say I want to incorporate a LLC.
Entities you can choose:
- Limited Liability Companies
- Limited Partnerships
- General Partnerships
- Limited Liability Partnerships
- Other Business Filings
Since most small businesses start off as a single-member LLC, you will initially be classified as a disregarded entity for the purposes of filing a federal tax return.
- If the only member of the LLC is an individual, the LLC income and expenses are reported on Form 1040 - U.S. Individual Income Tax Return), Schedule C, E, or F.
- If the only member of the LLC is not an individual, the LLC income and expenses are reported on the owner/member's tax return.
- If you do not wish to accept the default classification of disregarded entity, you can:
- File Form 8832 (Entity Classification Election) to elect corporate status, or
- File Form 2553 (Election by a Small Business Corporation) to elect S corporation status. Click here to fill out your S election form.
After you receive your confirmation of your state registration letter, for LLC, you are required to keep your public record updated by filing (within 90 days of filing the Articles of Organization) a Statement of Information with the State of California Secretary of State. Here's a link to the LLC-12 form, http://bpd.cdn.sos.ca.gov/llc/forms/llc-12.pdf
One thing to note, you might have heard of Resident Agents (RA). The term registered agent or statutory agent is defined as any individual or business that is assigned to receive service of process during which such an individual or business is part of a summons, lawsuit or similar legal action. Also, some people uses an RA to add an additional layer of privacy to hide the owner information, but in my opinion, if you really want to know who owns a business, it's not that much harder to find.
File for FBN/DBA
**[Optional] File for a Fictitious Business Name (FBN) or Doing Business As (DBA)** statement is required when the business name does not include the surname of the individual owner(s) and each of the partners; or the business name suggests the existence of additional owners; or the nature of the business in not clearly evident by the name of the business.
If your business is already set up and you want to do business under a name other than your existing corporation or LLC name, you will need to register a DBA. Here's a clear example, if you own a couple of brands selling on Amazon and would like to keep them separate, you can have one incorporation/entity with two DBA's. Or you can always have two corporations, which would mean two separate books and returns at year end.
Registering your DBA is done either with your county clerk’s office or with your state government, depending on where your business is located. There are a few states that do not require the registering of fictitious business names.
If you need to FBN or DBA in San Diego, go to https://arcc.sdcounty.ca.gov/Pages/all-forms.aspx#fbn, otherwise, you can skip this step.
After receiving a written confirmation on registering your DBA, you'll need to put a newspaper publication. State laws generally require a business to publish a fictitious name statement to connect the business name and the owner. The statement allows consumers to get information about the owner of the company. The published notice must run at a certain frequency and for a number of weeks, 4-weeks in San Diego. This usually runs about $25 to $65. You can call around based on an approved list of publications included from the DBA registration.
Obtain EIN number from the Internal Revenue Service (Federal Tax Identification Number). ** This number is used to set up bank account and is your businesses id, just like a Social Security Number to a person.
Next thing is to get your **Seller's permit and/or resale certificate**. You have to wait for your LLC ID from Secretary of State before you can submit your application online.
What is the difference between a sellers permit and a resale certificate?
Seller's Permit - required for all persons selling tangible property. You will need this to sell your products, apply for your Seller's Permit by clicking here, http://www.boe.ca.gov/elecsrv/ereg/. Here are some additional information on Seller's Permit, http://www.boe.ca.gov/pdf/pub73.pdf. Again, you can check your states respectable organization to obtain your seller's permit.
Resale Certificate - called BOE230 General Resale Certificate in California. If you purchase tangible personal property for resale, the transaction is not subject to sales or use tax provided the sale is properly documented. As a result, your supplier will ask you to provide a resale certificate as proof that the property was purchased for resale. You normally get your Seller's Permit first then your Resale Certificate if you need one. You can fill out this form and provide it to your supplier upon request, http://www.boe.ca.gov/pdf/boe230.pdf.
Contact the California State Board of Equalization:
Address: 15015 Avenue of Science, Suite 200, San Diego, CA 92128
Phone: (800) 400-7115 (tel:8004007115) http://www.boe.ca.gov/elecsrv/ereg/index.html
Some additional information, http://www.boe.ca.gov/formspubs/pub103/index.html
The jurisdiction where your home is located is likely to require a general business license. This license serves a two-fold purpose. First, licensing protects the residents of the city or county by identifying businesses operating in its jurisdiction.
Second, licensing raises revenue for the local government. For this reason, most general business licenses must be renewed annually. My local fee is about $20 a year.
California law requires all corporations and limited liability companies to update the records of the California Secretary of State either every year or every two years based on year of registration by filing a statement. Annual Report or Statement of Information (for CA) Click here http://www.sos.ca.gov/business-programs/business-entities/statements and see which forms you need.
Obtain an EDD number from the Employment Development Department, which is required if you employ and pay anyone (including yourself). When you first start out, you might not immediately need this because you're probably not going to necessarily make a profit your first few months or year. Ask your CPA for advice on when to start filing.
So here you go, a complete "How to incorporate your business guide" for dummies. If you have any questions, please contact your lawyer and accountant and hopefully, you can find someone knowledgable in your area of focus.