Start a Business in 7 Easy Steps
Here's a little checklist that you may find useful when considering starting up a business:
1. Contact your state, city & county to ask if any licenses/permits are required for your profession.
If you're in Portland, OR (my primary market), check out these websites:
http://licenseinfo.oregon.gov/
www.portlandonline.com
www.co.multnomah.or.us (or whichever county you live in)
2. Decide which type of business you should start.
Here are the most common types of business structures with easy-to-understand descriptions.
Sole Proprietor/No Entity
A sole proprietor is a single person who is engaging in business and is the sole owner. He or she may or may not have employees. In Oregon, if the owner chooses to use their personal name as the business name, then the business doesn’t even have to file with the Secretary of State. All business related income and expenses are reported on the owner’s individual tax return. Because the business is not legally separate from the owner, the owner’s personal assets are liable to creditors.
General Partnership
Here’s a common phrase heard from budding entrepreneurs – “Hey, we should start a business together!” Watch out! Just because someone is a good friend, doesn’t mean they would be a good business partner. There are many legal risks to a partnership. For example, each partner is individually liable for the debts of the partnership, regardless of whether the individual partner even was aware of the debt. That’s scary. Unlike a sole proprietorship, a partnership has two owners and the income and expense of a general partnership pass through to both of the partners. Because of the use of LLCS and S Corporations, General Partnerships aren’t as common as they used to be.
C Corporation
A corporation is considered a separate "person" under Oregon law. As such, it has its own debts, for which the owners are usually not liable (except in limited situations). The owners (also known as shareholders) of a corporation typically elect a Board of Directors who is responsible for running the corporation. The Board of Directors, in turn, appoints officers who are responsible for the day-to-day operations of the corporation. The corporation is governed by bylaws, which outline the rules, rights, and duties of each director and officer.
In order to form a corporation, Articles of Incorporation must be filed with the Secretary of State. There is a filing fee associated with this form along with an annual renewal fee.
S Corporation
A small corporation can elect to be an "S" corporation. The difference between a "C" corporation and an "S" corporation is how the entity is taxed. A "C" corporation files a separate tax return then when dividends are distributed to its shareholders, the shareholders are taxed on the dividends. An “S” corporation also files a separate tax return, but the gain or loss is passed through to the individual owners on a Form K-1, and the dividends are not taxed.
Limited Liability Company
A limited liability company (LLC) is a hybrid between a partnership and a corporation. An LLC can either be member-managed or manager-managed. A member-managed LLC operates more like a general partnership while the manager-managed LLC operates more like a corporation.
Either way, the profits and losses of the LLC pass through to each individual member. The LLC usually files its own tax return, but it does not pay taxes. Instead, each individual member pays the taxes on its share of the profit (or receives his/her share of the deduction for the loss).
To form an LLC, the Articles of Organization are filed with the Secretary of State. There is also a filing fee associated with the filing along with an annual renewal fee. An LLC is governed by an Operating Agreement.
Single Member LLC
Like its name suggests, a single member LLC is a limited liability company with only one owner. It operates the same as a multi-member limited liability company, except that it’s a disregarded entity for tax purposes. What is a disregarded entity? It just means that IRS doesn’t consider the business to be separate from the owner for tax purposes. In their mind, you and your business are the same entity. Because the owner and the business are the same entity, no separate tax return is required for the business – the owner’s tax return is good enough.
3. Check to see if you need an EIN with IRS. Apply for one, if needed. This is free of charge.
Go to http://www.irs.gov/businesses/small/article/0,,id=98350,00.html
4. Register your business with the state, if needed. Before you decide on your name, you may first want to check if the website url is available. For example, I made sure that www.carterbillingservices.com was available before I registered Carter Billing Services, LLC. (In Oregon, if you just use your name as your business & Social Security Number when you file your taxes, you don't even have to register with http://www.filinginoregon.com/).
5. Next, I would recommend opening a business checking account. This can establish good credit for your business at an early stage AND will make bookkeeping much easier.
6. Choose your accounting software and system for bookkeeping. Feel free to contact me directly with any specific questions.
7. Start marketing! (buy business cards, set up your website etc.) I know some excellent graphic designers and website developers, along with very inexpensive services that are available. Trust me - I'm one of the most frugal individuals you'll ever meet. :-) Feel free to contact me for referrals.
1. Contact your state, city & county to ask if any licenses/permits are required for your profession.
If you're in Portland, OR (my primary market), check out these websites:
http://licenseinfo.oregon.gov/
www.portlandonline.com
www.co.multnomah.or.us (or whichever county you live in)
2. Decide which type of business you should start.
Here are the most common types of business structures with easy-to-understand descriptions.
Sole Proprietor/No Entity
A sole proprietor is a single person who is engaging in business and is the sole owner. He or she may or may not have employees. In Oregon, if the owner chooses to use their personal name as the business name, then the business doesn’t even have to file with the Secretary of State. All business related income and expenses are reported on the owner’s individual tax return. Because the business is not legally separate from the owner, the owner’s personal assets are liable to creditors.
General Partnership
Here’s a common phrase heard from budding entrepreneurs – “Hey, we should start a business together!” Watch out! Just because someone is a good friend, doesn’t mean they would be a good business partner. There are many legal risks to a partnership. For example, each partner is individually liable for the debts of the partnership, regardless of whether the individual partner even was aware of the debt. That’s scary. Unlike a sole proprietorship, a partnership has two owners and the income and expense of a general partnership pass through to both of the partners. Because of the use of LLCS and S Corporations, General Partnerships aren’t as common as they used to be.
C Corporation
A corporation is considered a separate "person" under Oregon law. As such, it has its own debts, for which the owners are usually not liable (except in limited situations). The owners (also known as shareholders) of a corporation typically elect a Board of Directors who is responsible for running the corporation. The Board of Directors, in turn, appoints officers who are responsible for the day-to-day operations of the corporation. The corporation is governed by bylaws, which outline the rules, rights, and duties of each director and officer.
In order to form a corporation, Articles of Incorporation must be filed with the Secretary of State. There is a filing fee associated with this form along with an annual renewal fee.
S Corporation
A small corporation can elect to be an "S" corporation. The difference between a "C" corporation and an "S" corporation is how the entity is taxed. A "C" corporation files a separate tax return then when dividends are distributed to its shareholders, the shareholders are taxed on the dividends. An “S” corporation also files a separate tax return, but the gain or loss is passed through to the individual owners on a Form K-1, and the dividends are not taxed.
Limited Liability Company
A limited liability company (LLC) is a hybrid between a partnership and a corporation. An LLC can either be member-managed or manager-managed. A member-managed LLC operates more like a general partnership while the manager-managed LLC operates more like a corporation.
Either way, the profits and losses of the LLC pass through to each individual member. The LLC usually files its own tax return, but it does not pay taxes. Instead, each individual member pays the taxes on its share of the profit (or receives his/her share of the deduction for the loss).
To form an LLC, the Articles of Organization are filed with the Secretary of State. There is also a filing fee associated with the filing along with an annual renewal fee. An LLC is governed by an Operating Agreement.
Single Member LLC
Like its name suggests, a single member LLC is a limited liability company with only one owner. It operates the same as a multi-member limited liability company, except that it’s a disregarded entity for tax purposes. What is a disregarded entity? It just means that IRS doesn’t consider the business to be separate from the owner for tax purposes. In their mind, you and your business are the same entity. Because the owner and the business are the same entity, no separate tax return is required for the business – the owner’s tax return is good enough.
3. Check to see if you need an EIN with IRS. Apply for one, if needed. This is free of charge.
Go to http://www.irs.gov/businesses/small/article/0,,id=98350,00.html
4. Register your business with the state, if needed. Before you decide on your name, you may first want to check if the website url is available. For example, I made sure that www.carterbillingservices.com was available before I registered Carter Billing Services, LLC. (In Oregon, if you just use your name as your business & Social Security Number when you file your taxes, you don't even have to register with http://www.filinginoregon.com/).
5. Next, I would recommend opening a business checking account. This can establish good credit for your business at an early stage AND will make bookkeeping much easier.
6. Choose your accounting software and system for bookkeeping. Feel free to contact me directly with any specific questions.
7. Start marketing! (buy business cards, set up your website etc.) I know some excellent graphic designers and website developers, along with very inexpensive services that are available. Trust me - I'm one of the most frugal individuals you'll ever meet. :-) Feel free to contact me for referrals.
Disclaimer: All of the
information in this article is from sources believed to be reliable, but
accuracy and completeness cannot be guaranteed. While the author has been diligent
in attempting to provide accurate information, the accuracy of the information
cannot be guaranteed. Laws and regulations change frequently, and are subject
to differing legal interpretations. Accordingly, the author shall not be liable
for any loss or damage caused, or alleged to have been caused, by the use or
reliance upon this article.
