| Evaluate a Start Up | | | | year. The first year the business files an income tax |
| Before starting a company the Small Business | | | | return it adopts either a calendar tax year or a fiscal |
| Administration, SBA, recommends that potential | | | | tax year. The calendar year is the most common tax |
| entrepreneurs make a list of reasons for wanting to | | | | year. A calendar tax year is 12 consecutive months |
| go into business. Some of the most common reasons | | | | beginning January 1 and ending December 31. The |
| for starting a business are: to be your own boss; | | | | other tax year is a fiscal tax year. A fiscal tax year is |
| financial independence; creative freedom; and to fully | | | | 12 consecutive months ending on the last day of any |
| use your skills and knowledge. In addition, the SBA | | | | month except December. |
| suggests entrepreneurs answer the following | | | | Businesses must use a calendar tax year if: |
| questions: | | | | (1) You keep no books. |
| (1) What type of business am I interested in starting? | | | | (2) You have no annual accounting period. |
| (2) What services or products will I sell? | | | | (3) Your present tax year does not qualify as a fiscal |
| (3) Where will I be located? | | | | year. |
| (4) What skills and experience do I bring to the | | | | (4) You are required to use a calendar year by a |
| business? | | | | provision of the Internal Revenue Code or the Income |
| (5) What will be my legal structure? | | | | Tax Regulations. |
| (6) What will I name my business? | | | | Designate Board of Directors |
| (7) What equipment or supplies will I need? | | | | The designation of Board of Directors is legally |
| (8) What insurance coverage will be needed? | | | | required if a corporation is formed. The Board of |
| (9) What financing will I need? | | | | Directors are essentially necessary for the |
| (10) What are my resources? | | | | management of the corporation. Their responsibilities |
| (11) What will I compensate myself? | | | | include establishing all business policies and approving |
| Select A Business Structure | | | | major contracts and undertakings. In addition, the Board |
| The success or failure of a new company can | | | | may also elect the President. Ordinary business |
| depend on a variety of factors including, the manner in | | | | practices, however, are carried out by the Officers |
| which a business is formed, managed and promoted. | | | | and employees of the corporation under the directives |
| Although there are different opinions as to the process | | | | and supervision of the Directors. |
| involved with starting a company, entrepreneur | | | | Designate a Registered Agent |
| advisors agree that the first step to starting your own | | | | Almost all jurisdictions require that the corporation |
| business is selecting the business structure that is best | | | | designate a registered agent for service of process. |
| fitted for your intent and purposes.There are various | | | | However, in most cases, anyone who has a street |
| ways an entrepreneur may conduct business, including | | | | address (no P.O. Boxes) within the state of |
| sole proprietorship, partnership, limited liability and | | | | incorporation may act as a registered agent for the |
| corporation. Before selecting a business structure, the | | | | corporation. The main purpose of the registered agent |
| potential entrepreneur should consider the following: | | | | requirement is to provide potential claimants against |
| legal restrictions; liabilities assumed; type of business | | | | your corporation with a live person, whose |
| operation; earnings distribution; capital needs; number of | | | | whereabouts are available in public records, who may |
| employees; tax advantages or disadvantages; and | | | | accept service of process on behalf of the |
| length of business operation. | | | | corporation. |
| The following is a list of advantages and | | | | File Articles of Incorporation |
| disadvantages of different business entities: | | | | Although state laws differ in their filing requirements of |
| Advantages | | | | sole proprietorships, corporations must file "Articles of |
| Sole Proprietorship | | | | Incorporation" - the main filing document which begins |
| (1) You are the boss. | | | | the corporation's existence. Some state laws, such as |
| (2) Easy to form and to dissolve. | | | | Illinois, require a sole proprietorship to file an Assumed |
| (3) You retain all profits. | | | | Name form with the County Clerk. |
| Partnership | | | | Hold First Board of Directors Meeting |
| (1) Simple to organize but should get partnership | | | | After incorporation, the first Board of Directors |
| agreement. | | | | meeting will resolve the following matters: adopt |
| (2) Business will benefit if partners have | | | | bylaws; issue stock; adopt a corporate seal; and |
| complementary management skills. | | | | designate a banking institution to serve the |
| (3) Ability to expanded capitalization increased from | | | | corporation's banking needs. Many states allow the |
| sole proprietorship. | | | | Board of Directors to be comprised of one person. |
| Corporation | | | | Determine Accounting Methods |
| (1) Limited personal liability for debts and judgments. | | | | Each new business must also use a consistent |
| (2) Can raise income through sale of stock therefore, | | | | accounting method, which is a set of rules for |
| maximum capitalization. | | | | determining when to report income and expenses. The |
| (3) Lower cost per unit of doing business. | | | | most commonly used accounting methods are the |
| (4) Can deduct the cost of benefits. | | | | cash method and an accrual method. Under the cash |
| (5) Can elect to be S corporation (to be taxed similar | | | | method, you generally report income in the tax year |
| to a partnership) if you meet requirements. | | | | you receive it and deduct expenses in the tax year |
| Disadvantages | | | | you pay them. Under an accrual method, you generally |
| Sole Proprietorship | | | | report income in the tax year you earn it. Regardless |
| (1) Very hard work. | | | | of when payment is received, expenses are deducted |
| (2) Unlimited financial and legal liability. | | | | in the tax year you incur them. |
| (3) Management deficiencies. | | | | Obtain an Employer Identification Number (EIN) |
| (4) Limited working capital continuity of operation. | | | | To obtain an employer identification number (also |
| (5) Potential lack of continuity of operation. | | | | known as a tax identification number) the IRS Form |
| Partnership | | | | SS-4, available on the IRS web site at rs.gov, must be |
| (1) Unlimited financial responsibility partners are jointly | | | | completed. The completed form can and be mailed or |
| and individually liable for actions of their partners. | | | | faxed to the IRS office indicated on the instructions to |
| (2) Potential conflicts of authority. | | | | Form SS-4. There is no fee. If the EIN is needed |
| (3) Potential personality conflicts. | | | | quickly, the IRS can assign a tax identification number |
| Corporation | | | | by calling at (866) 816-2065. The IRS requires Form |
| (1) Expensive, complicated to form. | | | | SS-4 to be completed and present in order to verbally |
| (2) More legal compliance requirements from federal | | | | complete the process. The following questions |
| and state agencies. | | | | provided by IRS will determine if your company needs |
| (3) Double taxation - dividend paid to shareholders | | | | to obtain a tax identification number. You will need an |
| aren't deductible. | | | | EIN if you answer "Yes" to any of the following |
| (4) May be considered Impersonal by customers. | | | | questions: |
| Choose A State of Formation | | | | (1) Do you operate your business as a corporation or a |
| One of the first decisions a business must make after | | | | partnership? |
| deciding to incorporate involves selecting the proper | | | | (2) Do you file any of these tax returns: Employment, |
| state of incorporation. A corporation is not required to | | | | Excise, or Alcohol, Tobacco and Firearms? |
| incorporate in the state of its operations. However, | | | | (3) Do you withhold taxes on income, other than |
| often the best decision may be to incorporate in your | | | | wages, paid to a nonresident alien? |
| home state. Two issues must be weighed to | | | | (4) Do you have a Keogh plan? |
| determine the proper state: | | | | (5) Are you involved with any of the following types of |
| (1) a dollars and cents analysis comparing the costs of | | | | organizations? Trusts, except certain grantor-owned |
| incorporating in the state of operation versus qualifying | | | | revocable trusts, IRA's, Exempt Organizations, |
| to do business as a foreign (non-resident) corporation | | | | Business Income Tax Returns, Estates, Real estate |
| in the state under consideration and | | | | mortgage investment conduits, Non-profit organizations, |
| (2) determining the advantages and disadvantages of | | | | Farmer's cooperatives and Plan |
| each state's corporate laws and tax structure. If the | | | | administrators.According to the IRS website, individuals |
| corporation is a closely held corporation (not publicly | | | | doing business as sole proprietors will not need an EIN, |
| traded) and does business primarily within a single | | | | unless they decide to hire employees. All income for |
| state, local incorporation is often preferable. The cost | | | | sole proprietors without employees can be reported |
| of local incorporation will usually be less than | | | | using the owners Social Security number. |
| incorporating in another state and qualifying to do | | | | Register Business/Obtain License |
| business as a foreign corporation in the state. A | | | | Depending on state laws your business may be |
| foreign corporation that qualifies to do business in | | | | required to register with the Department of Revenue |
| another state is subject to taxes, annual report fees, | | | | or obtain a retail license to sell/service to the public. |
| potential lawsuits and legal manners from both the | | | | Most states have sales tax laws designed to turn retail |
| state of incorporation and the qualifying state. | | | | businesses into tax collectors. Call or go to your states |
| Choose Name for Corporation | | | | Department of Revenue office and request the form |
| Once the structure of the company is chosen the | | | | for business registration to obtain a retail license. A |
| potential entrepreneur should choose a business name | | | | small fee will generally be required and in some states |
| for the corporation. The name of the company should | | | | you must renew the license each year. Once your |
| be chosen carefully. It is very important that | | | | permit is mailed to you, you will be given detailed |
| entrepreneurs portray the desired image for their new | | | | instructions on how to file the sales tax forms each |
| corporation. Legally, the name selected must not be | | | | month. |
| "deceptively similar" to any existing corporation within | | | | Get a Business License |
| the incorporation state. In addition, there are state | | | | Many states and localities require business to obtain a |
| specific required corporate indicators such as | | | | business licenses or permits no matter what type of |
| Corporation, Incorporated or an abbreviation.During this | | | | entity it is. The license can usually be obtained in |
| process it is advised that potential entrepreneurs | | | | person by going to the city or village hall business |
| contact their Secretary of State, Corporations Division | | | | licensing office. These offices usually charge a nominal |
| to learn about name availability. | | | | annual fee for the annual issuance of a business |
| Determine the Composition of Company Stock | | | | license.My real estate background and experiences |
| The next step is to determine the composition of the | | | | with various city halls have demonstrated that the |
| business stock. Many different options are available in | | | | licensing offices' primary areas of concern are the |
| regards to the structure and composition of a | | | | type of business, hours of operation and location of |
| corporation's stock. Where the corporation has a | | | | business. Depending on the scope of your business, |
| fewer than 35 shareholders, a simple, inexpensive | | | | your home may require clearance from the zoning |
| model for the structure of corporate stock may be | | | | department. Although every municipality has different |
| most appropriate. A savvy business owner will | | | | zoning laws, zoning is generally not a problem with |
| recognize that authorizing a number of shares that will | | | | small home based businesses. The zoning |
| qualify for the minimum annual state filing fee is often a | | | | departments' main focus is to ensure that new |
| wise, money-saving choice. | | | | businesses remain legal and conforming to their zoning |
| Determine Tax Year | | | | regulations; don't improve or build additions that may |
| Each business taxpayer must figure their taxable | | | | encroach on easements or public utility lines; and do |
| income on an annual accounting period called a tax | | | | not disturb the neighbors. |