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Ready, Set, Go! Getting it Done
Incorporating & Getting a Business License
By Ahmed Saad, Technology Matrix Group - Copyright 2001
In order to legally operate a business you will need to be a recognized entity in your state, have a federal tax ID, a local tax ID, and a business license.

You will need to start with your legal business status.  While you can run your business as a sole proprietor or a partnership, there are benefits to incorporating that makes it worth a bit of extra effort.  Regardless of how you plan to run your business, you will need to file with the state corporation commission using the appropriate paperwork for the type of business you plan to have (including a sole proprietorship).

bullet_rdsetgo.gif (900 bytes) Why should I incorporate?

Incorporating will give you the benefit of having your business as a separate entity from you personally.   This gives you a higher level of legal protection than some other forms of business where your personal assets can be liable for any business liability.  It also allows more room for growth if you later want to raise money and have shareholders.   Although sole proprietorships and partnerships  have a more favorable tax treatment than corporations, filing for an "S" corp tax status will give you a status which is almost as favorable since your corporate earnings are only taxed once you receive them as a shareholder (and will therefore be taxed according to your tax bracket).    Additionally, it allows you to deduct all your "S" corp. losses against your personal income, which can be very useful in the first few years of business.

bullet_rdsetgo.gif (900 bytes) What should I do first?

Regardless which form of company you want to have, you will need to get in touch with your "State Corporation Commission" to get the required paper work and to file it with their office.  Go to http://www.statelocalgov.net/index.cfm find your state, click on it and look for a link to your State Corporation Commission.   Go to their website, then call or e-mail them and request the proper forms.   You can, of course, get someone to help you incorporate but why pay someone when it is such an easy thing to do?

bullet_rdsetgo.gif (900 bytes) How many shares should I authorize?

If you do not expect many future shareholders, and it is going to be a small family business then authorize the lowest amount of shares.  It will be the cheapest way to file and the cheapest to renew.  If you anticipate reasonably fast growth, then go with a decent amount of shares to accommodate future shareholders.  Don't authorize a huge number of shares, since this can be costly, unless you are sure of the kind of growth you will experience.  You can always authorize more in the future (although it costs some money) instead of paying year in and year out for shares you will never need.

bullet_rdsetgo.gif (900 bytes) Where should I incorporate?

Most states have adopted the Uniform Commercial Code (UCC) and for the most part have adopted reasonably similar corporate laws.  In many cases incorporating in the famous Delaware is not significantly better for your business, and may be a bit of additional work since you will need to file at your locale as a foreign (Delaware) company operating in your state.  You will also have to file every year with Delaware, as well as with your state to keep up your good standing.

bullet_rdsetgo.gif (900 bytes) What information will I need to file?

Aside from the name of the company and the amount of shares you wish to authorize, you will need the business address, your name, and the names of anyone who will be a co-owner of the business.  You (all of you if more than one) will be both the initial director(s) and Incorporator(s).

bullet_rdsetgo.gif (900 bytes) How long will it take and what's the next step?

Once you have mailed in your forms, you should have your legal documents in about 3 weeks.  The next step is to get an Employer Identification Number (EIN) from the IRS.   Check this page, http://www.irs.gov/smallbiz/newbusiness/einnext.htm
or this page if you are taking the corporate route, http://www.irs.gov/smallbiz/newbusiness/changing.htm.   There you will find both form SS-4 (for the EIN) and form 2553 used when filing for "S" corp. tax status.  Fill out and submit.

bullet_rdsetgo.gif (900 bytes) What else?

Now you will need to go back to http://www.statelocalgov.net/index.cfm and find the link to your state's taxation and revenue department.  Find out what the requirements are for registering a business in your state, one of these will include getting a state tax ID.  You must have a federal EIN in order to get a state tax ID so make sure you have one before applying.  Also, don't forget to find out what local city/county you should get a business license from.

All this should not take more than a total of 8 hours of work and possibly half a day of legwork. So go ahead and get started.


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