Time To Get Legal--Your Guide To Inc, LLC, EIN, Where & How To Know
So….you now have a great business idea, a business plan, you have sources of funding lined up to help make your dreams a reality, and it seems that everything is falling into place. Now it’s time to get legal.
Many small business owners do not have the experience or expertise in legal planning that is required to protect themselves, their assets, and the people that they work with, yet it is essential that there is a basic understanding of putting legal systems in place for your business to survive. Let’s explore some of these terms that you will come to know well as you ascend the entrepreneurial ladder to success.
Incorporated The term corporation has roots in Latin, with the term “corpus” literally meaning governing body. When you incorporate your business, you establish your goods and services--and therefore your company’s assets and liabilities--as separate from yourself and your personal property. An incorporated business can create regulations, file lawsuits, buy and sell properties, and perform other business transactions independent of the person who established the company.
Benefits Of Incorporating Include: Personal asset protection--your private property, assets, as well as your family gain protected against loss and legal action placed against your business.
Additional credibility and name branding--adding “INC” or “LLC” behind your company name and logo establishes credibility in the eyes of vendors and other businesses who wish to do business with you. Incorporating also aids in building a brand presence for you and your company.
Long-term survivability--in the case of a “sole proprietorship,” the business and all of its legal advantages dies if the proprietor has to buy or sell. With an incorporated label, the business will continue to survive independently of management or ownership changes.
Tax benefits--a business that is set up as a corporation does not get taxed based on individual and corporate earnings; it is merely subject to the taxation laws of business only. Consider this is an extra shield for the individual who is running the business and wants to protect his personal assets from Uncle Sam.
Deductible expenses--Corporations can deduct all sorts of business expenses, INCLUDING employee salaries, before reporting income on tax forms. For business owners who employ family members in their corporations, this is extremely helpful in allowing you to hang on to more profit.
Ways To Set Up Your Business There are several ways to get your legal affairs in order, depending on what you and your business need:
A sole proprietorship is perhaps the easiest way to set up your business, although it does come with some disadvantages. The buck stops with you, as you get to make all the decisions for your business legally, but this also makes you solely responsible for successes and failures that you incur on your road to financial independence.
In a sole proprietorship, the line becomes blurred between business and individual assets, so be careful when drawing up contracts with vendors and other companies. You will want to protect yourself as much as possible.
The idea is to structure an LLC or Limited Liability Company in such a way that it protects your personal finances. Your home, personal belongings, and loved ones receive protection from unfortunate events such as lawsuits, business losses, and tax liabilities.
A corporation puts even more distance between your personal life and your professional life. There are two main types of corporations--C corps offer a few more tax advantages to you, the business owner, as they allow you to make additional business deductions that an S corp does not. S corps are regarded as “pass-through entities,” meaning that all income and assets passed through and reported on the business owner’s individual income tax return. S corps are also a bit more restricted concerning the number of shareholders that invested in the company. Do your research and find out what your needs are, yet don’t be surprised as your business evolves. You may need to change the fundamental structure of your business set up as your empire grows.
EIN--Employer Identification Number An Employer Identification Number, or EIN, is thought of like a social security number for your business entity. It is best to procure an EIN immediately when setting up your business; you will need this number when reporting any income to the IRS for tax purposes. EINs are also helpful when opening up business accounts with loan vendors and banks.
These types of business accounts have additional advantages for the business owner, and it is best to separate your personal assets from business income and expenses as soon as possible. Even though some types of business setups do not require the use of an EIN for income reporting purposes, it is necessary for conducting business with both big business bankers and the IRS. To apply for an EIN, make sure you have your incorporation documents from the Secretary of State's office in the state you "inc'd" your company. The EIN is free and will take you about 5 minutes to obtain if your file for it online (recommended).
Go to the IRS site for business EIN applications at: https://www.irs.gov
Apply for an employer identification number (EIN) online.
Fill out the form digitally, and you can be downloading your EIN in minutes.
Ducks In A Row, Bucks In The Bank Now that you are well on the way to crossing your legal responsibilities off your list know that there are hundreds of resources out there to help you understand business ownership and legal obligations involved with hiring, retaining, and compensating employees. The more you have put in place before you start incurring profits, the less likely you are to encounter hassles and legal issues as a result of not having properly protected yourself and your loved ones.
Visit the following websites for some more information on understanding the legal aspects of owning a business:
https://smallbiztrends.com/2015/02/low-cost-free-legal-advice-for-business.html
https://smallbusiness.findlaw.com
Your local area chamber of commerce office should also have valuable resources to get you started in the right direction.
Don’t let the legal aspects of owning a business deter you from achieving your goals and dreams. Remember the “why” you wanted to get started, and let the “how” take care of itself as you plan your structure, take logical steps toward your goals, and watch your business take off. Let your entrepreneurial spirit fuel your fire, and look at this opportunity for learning excite you as you watch your dream take shape. Go-get-'em!
IMPORTANT DISCLAIMER: The information contained in this blog post is for educational and marketing purposes only. While certainly deemed reliable, we cannot guarantee the accuracy of the information. Please consult with you attorney, accountant, financial advisor or other licensed representative.