Business Entity Selection
The main businesses that need to file with the government are Corporations and LLCs. There are many differences between the two. More information can be found here.
Articles of Incorporation
Articles of Incorporation is the document that is filled out and sent to the Secretary of State to establish the business entity. Generally, corporations and LLCs must have an Articles of Incorporation filed by the secretary of state before the business is considered formed. It is also important to make sure a business owner receives the certified copy of the filed Articles of Incorporation from the Secretary of State before doing business under the business name.
Information in the Articles of Incorporation include:
- Entity Name
- Business Address
- Agent for Service of Process
- Shares authorized (Corporations)/ Management Structure (LLC)
- Purpose Statement
Statement of Information
A Statement of Information (SOI) must be submitted after the Articles of Incorporation is filed. Generally, the SOI must be filed within 90 days after filing the Articles of Incorporation. In addition, a new statement of information or statement of no change must be filed periodically after the first filing. For example, an SOI must be submitted every two years in California.
A Statement of Information include:
- Entity Name
- Business address
- Officers & Directors (Corporation)/Members (LLC)
- Business Type
Bylaws/Operating Agreement
A corporation should have a set of Bylaws. An LLC should have a set of operating agreements. The Bylaws and Operating Agreements are the laws by how the business is run. In the bylaws, the document sets out information about shareholder, officer, and directors rights; information on how meetings are held; Share certificates and transfers; Indemnification of directors and officers; amendments; and any other addition laws that the corporation decides to include. The operation agreement does the same for the members in a LLC.
Employer Identification Number
An Employer Identification Number (EIN) is used by the IRS to identify taxpayers who are required to file various business tax returns. A business is not required to have an EIN, however, it will be required by banks when opening up a business account.
Tax Payment
Once a business is established, the business may need to make certain tax payments. Business entities may need to pay their first payment in the first couple of months, while other businesses may not need to pay the first years tax. After the first year, there is a continuing duty to pay taxes every year after. If there are any issues regarding taxes, it is important to talk to a competent tax advisor.
Business License
Before doing business in the state, the business may be required to obtain a business license from the county the business is doing business in.
Additional Internal Documentation
There are some important internal documents to have when starting out the business:
Action by written consent of the Sole Incorporator: If a business is using an entity formation service, for example, legalzoom or even a law firm, it is important to get an action by written consent of the Sole Incorporator. The Written consent will state the incorporator is electing a director to be responsible for the business entity and the incorporator has resigned from being in charge of the business.
Decision by the Board of Directors: The board of directors will need to have a meeting to ratify (accept) any actions taken by the business owners made on behalf of the business in furtherance of setting up the business. The decision may include ratifying any actions taken by the owner before the business was properly formed as well. The decision may also include any other business decision that need to be made including electing officers.