Everything You Need to Know About Business Legal Formation
There are plenty of different legal formations you can choose from. Each one has its benefits and drawbacks depending on what kind of business you want to run and how many people will be involved in running it.
The first step in choosing your legal formation is figuring out which type of company best fits your needs and goals as an entrepreneur; once you know this, the rest of the process will become much more manageable.
Lots of paperwork, lots of long term implications, we help you cover all your bases in the process.
“Play by the rules,
but be ferocious.”
Phil Knight
Get Ahead of Legal Obstacles
As an entrepreneur, forming the right legal structure for your business is essential to its viability.
There are ample of choices when it comes down to legal formations, which one you choose will depend on several factors: - Revenue Forecast - Type of Business - Taxation - Liabilities and responsibilities
What is a corporation?
Corporations are legal entities that exist separate from their owners. To form a corporation, you must file incorporation papers with your state government and pay a fee. The paperwork varies by state, but it is a fairly straightforward process that typically takes several weeks. At its core, creating a corporation involves:
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Drafting an article of incorporation (which includes basic details about your business, such as its name and address).
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Have your filing fee accepted by the state's secretary of state.
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Creating Bylaws for your company (which sets forth rules for the operation of your company).
Next, you must register with federal agencies such as the Internal Revenue Service (IRS) so that they know how to tax you and where they can send correspondence.
What is an LLC?
Limited liability companies, or LLCs, are business structures that combine elements of both corporations and partnerships. Unlike a corporation, LLCs can be owned by only one person (sole proprietorship) or multiple people (partnership).
In addition to providing less personal legal formation than corporate entities and partnerships, an LLC has fewer tax reporting requirements. An LLC must file federal taxes as a pass-through entity. It doesn't pay income taxes itself but instead passes on earnings and losses directly to its owners. However, it doesn't have to file many state-level taxes.
Legal formation of a sole proprietorship
A sole proprietorship is a legal structure for a business with only one owner. To register as a sole proprietor, you must choose a business name and file it with your local county or city clerk.
Depending on your location, you may also need a license from your city or county. Before registering with any state agencies, check that you have followed all local registration requirements.
Sole proprietors do not need to register for federal taxes. Still, they must submit an informational tax return Form 1040-SS with their annual income tax filing. An Employer Identification Number (EIN) is a unique nine-digit number assigned by the IRS to identify a business entity. It's similar to a Social Security Number for individuals.
When you sign up for an EIN through the IRS website, there's no specific section for the legal form your company is classified as. This information is only part of your company's address and industry type. It's how businesses get paid by banks and vendors who require identification before paying out funds.
How do I incorporate an LLC?
The legal formation of a partnership differs from the legal formation of a sole proprietorship. It can be quite confusing, but each business owner or partner must understand what type of legal entity is being formed. Suppose you consider incorporating your business as an LLC, corporation, S corporation, or partnership. In that case, we can help you with legal entities and get you through your next steps toward growth and success.
What kind of paperwork do I need for incorporation?
When it comes to legal formation, there are several kinds of businesses you can form. The paperwork you need for incorporation depends on what type of business you want to create and which state you choose.
The legal documents required for each type of legal formation
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Sole proprietorship: The only legal document required for a sole proprietorship is a DBA license if your business name isn't identical to your name. In addition, you should keep any contracts with customers separate from other company records so they're easier to find later on.
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Corporation: Depending on where you live, you may have to file articles of incorporation along with bylaws, stock certificates, and minutes of meetings when incorporating a corporation.
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Partnership: All partnerships must file papers of partnership along with bylaws detailing how profits will be split among partners, capital accounts detailing each partner's investment in the company, and operating agreements that outline how partners will operate their partnership while keeping all assets separate from their assets.
How much does it cost to incorporate my business?
Incorporating your business is a serious financial decision. You could end up with more than just a piece of paper.
Depending on your state and situation, including your business could result in hundreds or thousands of dollars worth of legal fees and other charges (legal formation of sole proprietorship).
The exact amount will depend on what type of corporation you choose to create—and who's forming it (more on that later).
Find the right legal structure for your business
If you consider incorporating your business as an LLC, corporation, S corporation, or partnership, Dallas Inc can help you with legal entities and get you through your next steps toward growth and success.