Whether you’re a business of just a couple people, or have multiple employees, you might be able to benefit from forming a corporation, limited liability company, or other business entity. The process of forming a company means that you are creating an entity that is legally separate from you. A company can be sold and carry on without your involvement, and it can also own property and sign contracts. How Do You Form a Business?
The process isn’t overwhelming, but it can get daunting, as there are certain steps that have to be taken in the proper order. Every state has different processes to becoming incorporated, but a Denver business attorney can help you navigate the process in Colorado.
Get the Simple Stuff Out of the Way
The first steps to forming your business are getting some of the simple things established. The first step, of course, is to choose a name. Legally, you should not use a business name that is already taken, and your particular state will have a service to check on availability of a particular name. In Colorado, for example, you can check on the Colorado Secretary of State and search for whether your name or a similar name is already registered. Be careful, though. Just because you are allowed to register a name does not necessarily mean that the name is unique, and you want to avoid being accused of trying to profit from someone else’s good will. In other words, you may not want to register “New Company, LLC” if you see there is already a “New Company, Limited Liability Company,” even if the Secretary of State lets you do so!
If you’re considering a trademark or a logo, check in with the United States Patent and Trademark Office to make sure that your trademark is unique. This involves doing a trademark search online which, while technically accessible to anyone, really benefits from a user who is familiar with how the database is organized.
Next you have to pick a location. While the address doesn’t have to be a designated office space, many state and local governments have rules surrounding where a business can be located. The business location must also be appropriate for your specific industry, but many states requirements allow you to get started with nothing more than a post office box. In addition to choosing a principal office, you also need to choose a registered agent. This is someone who is authorized to accept service of process of legal documents for your company. Be careful, because if you list a registered agent at a location in Colorado and it turns out there is no one there to actually accept service – like using a P.O. Box – then your company might end up being subject to service by mail or other means.
Choose the Right Corporate Entity
Generally speaking, there are two different forms of companies that you can choose from – a Limited Liability Company (LLC) or a Corporation (Inc.). The LLC is where many small businesses start, as it is a mix between a partnership and a corporation. LLCs with multiple members should consult an attorney and an accountant to create a formal operating agreement.
Corporations come in a couple of forms – an S Corp or a C Corp. An S Corp is generally for smaller businesses, as they can elect to have their business taxed regularly, or as a pass-through entity. If the latter option is choses, the business owner pays the business taxes on their own individual tax returns. A C Corp is generally much larger, and is a publicly traded business. The C Corp is owned by shareholders, and are subject to double taxation – when profits are realized, and again when passed to shareholders. Companies for particular purposes, such as performing licensed work as a doctor, public adjuster, lawyer, or similar professions, may have additional rules that must be followed.
After getting your proper corporate entity established, you need to obtain a tax identification number. This number keeps track of businesses through an Employer Identification Number (EIN), and you can apply for one directly through the IRS website.
Benefits of Incorporating Your Business
Businesses that are incorporated have greater asset protection than sole proprietorships and general partnerships. A general partner or sole proprietor faces unlimited personal liability for the debts and other financial obligations of a business. That means their personal assets remain at risk should a judgment go against a business.
Incorporating can also give your business additional credibility to consumers and other vendors. Incorporation also protects the name of your business, allowing it to exist in perpetuity – even if the ownership or management changes. This process can also give the business owner tax flexibility, as a corporation can avoid double taxation of corporate profits and dividends. Corporations can also deduct normal business expenses before allocating income to the owners.