You may or may not know that forming a business can actually be pretty simple; completion taking no more than a couple of hours. To be clear, we’re not talking about the process of writing a business plan, preparing a marketing strategy, finding investors and so on. We’re just looking at the steps you need to take so that you can consider your venture a legitimate entity with the government.

As this is a formal process that you are embarking on with the government, it can be a little intimidating. You don’t necessarily know what you need to do and you definitely don’t want to get it wrong. For these reasons, we are going to go over the aspects to forming a business, but leave the heavy lifting to an online legal filing service like Rocketlawyer or LegalZoom. This route is more expensive than going at it on your own but will be cheaper and faster than using an attorney. This will give you the assuredness that everything is completed in its entirety and in the correct format, so as to eliminate any mistakes you might have made on your own.

When it comes to legal matters, the conservative route is to always get professional counsel from an attorney, but the purpose of this article is to let you know that you can form a company without an attorney.  I have done this in the past without any issues arising.

Without further adieu, here are the 6 steps to quickly and easily form your own business.

Step 1: Choose a structure

The first step in forming your business is choosing its structure. Are you going to be a sole proprietorship, an LLC or a corporation? If you’re not sure, we wrote a detailed article on this here.

The Cliff’s Notes version goes something like this:

Sole proprietorship

The most simple form of business entity; you don’t need to register this entity with the government as you and your business are considered one and the same.

You are personally liable for your business debts and responsible if your business is sued.

You pay personal income tax on all business profits as well as self-employment tax.

You can’t have partners or issue shares to raise money.

LLC

You are not personally liable for business debts and are protected if a suit is filed against your company.

The company does not file taxes but rather profits and losses are “passed through” to the owner(s) who then pay income tax on this money similar to a sole proprietorship.

There can be multiple partners in an LLC.

You don’t have to hold board meetings or record minutes like a corporation.

S Corporation

You are not personally liable for business debts and are protected if a suit is filed against your company.

The company does not file taxes but rather profits and losses are “passed through” to the owner(s)/shareholder(s) who then pay income tax on this money.

There is no self-employment tax.

There is no payment to Social Security and Medicare on dividends.

You can have shareholders and raise money.

There are stricter formalities and ongoing documentation than a Sole Proprietorship or LLC.

Need more information before you feel comfortable selecting a business structure? Read our post The Beginner’s Guide To Choosing A Business Structure.

Step 2: Picking the state of formation

For most sales professionals, you should file your company papers in your state of residence. Unless you plan on having significant business activity in other states, this will make the most sense for your operation. If you are a representative for another organization and conduct business through them in other states, they should be registered to operate in those states, meaning you don’t have to do this for your company.

Step 3: Registering a business name

There are two ways to register your company’s name. When you form your LLC or S corp, the name that you designate will be your registered business name with your state. If you would like an alternative name, registering a DBA will provide you with your assumed name. A DBA, or “doing business as” name is one that you can give your company at any time. It’s a very simple process completed with the Secretary of State that legally registers an alternative name for your business entity. So if for example, you are registered as John Smith Designs LLC, but later feel that your brand would be better represented as Leading Edge Designs, you can get the DBA for that name rather than forming a new company. A DBA can be useful to both LLCs and corporations that want to better present themselves to their customers as well as sole proprietorships that would like to use a business name other than their own name.

Step 4: File business formation papers

As we mentioned above, sole proprietorships do not need to file formation papers with the state, but LLCs and corporations do. If you’ve decided to form an LLC, you will need to file Articles of Organization with the Secretary of State.

If you have determined that an S corporation is a better fit for you, you will need to file Articles of Incorporation with the Secretary of State. You will also need to elect a board of directors and issue shares. Lastly, if you want to take advantage of the “pass-through” tax option, you will need to file Form 2553 with the IRS within 75 days of your incorporation.

Having filed your documents with the state, the state will review and certify them if everything checks out. You will receive a certificate from the state confirming that your newly created business has been registered.

Step 5: Obtain a tax ID number

Unless you are a sole proprietorship with no employees, you will need to obtain a tax ID from the federal government. Sole proprietors can use their Social Security number, however, it is also recommended that you get a tax ID number. The reason being that you will need to provide your identification when creating a business bank account, etc., and having a tax ID will protect you from having to continually give out your Social Security number.

You can obtain this number from the online legal filing services when you organize your company, or as a sole proprietor might choose, you can file for a number directly from the IRS here. All questions a sole proprietor might have regarding a tax ID can be found here.

Step 6: Opening a bank account

With any new business venture, it is always recommended that you open a separate bank account to clearly distinguish your business finances from your own. You will need your legal business name and tax ID number to create this account.

Disclaimer

The materials available on this website are for informational purposes only and not for the purpose of providing legal or tax advice. You must not rely on the information on this website as an alternative to legal or tax advice from your attorney, accountant or other professional service providers. You should contact your advisors to obtain counsel with respect to any particular issue or problem.