Over the course of my career, I’ve helped over hundreds of thousands of small business owners incorporate a business or file an LLC. And certainly, there are many questions leading up to the process, such as…what type of business should I form? What’s the difference between a C Corporation and an S Corporation? But I’ve also found there can be just as many questions after incorporating a business or forming an LLC.
I’ve put together some of the more commonly asked questions to help you navigate life after the incorporation or LLC formation process:
I used to be a sole proprietor and I had a Federal Tax ID number. Do I need to get a new Federal Tax ID number now that I’ve incorporated/formed an LLC?
The answer here is yes. An LLC or corporation is its own separate entity (remember an LLC or Corp can sue, be sued, get a loan…) and as such, it needs its own federal tax ID number, also known as an Employer Identification Number (EIN). Think of business formation like the birth of child. Once a child is born, it needs its own social security number. The same holds true for your business.
As a sole proprietor, you’re able to identify your business either with your social security number or an EIN. However, if you’re operating your business as an S Corporation, LLC, C Corporation or other legal entity, you must obtain an EIN for that entity. Otherwise, you will not be able to open up a business bank account or file your business tax returns properly.
After I incorporate or form my LLC, what happens to my sole proprietorship?
This question needs to be answered on two fronts:
- From a tax perspective, you should consult your accountant/CPA about when is the best time to close the books on your sole proprietorship and open them on your Corp/LLC. This decision can have some pretty hefty tax implications and some professional advice can go a long way.
- From an entity standpoint: if you file the Corp/LLC under the same name as your sole proprietorship, you can start conducting business under the Corp or LLC. In this case, you can cancel the DBA (Doing Business As) that you had set up with your sole proprietorship, or just let it lapse.
If I have a bank account as a sole proprietor, can I convert it to the corporation or LLC, or do I need to open up a new bank account?
No, you will need to close the books on your sole proprietorship (again remember, you should check with your CPA/accountant on the best time to do so…) and then open up a new bank account under the Corporation or LLC.
Once I form a corporation or LLC, is my name automatically protected in all 50 states?
No. Your name is not automatically protected in all 50 states upon the formation of your Corporation or LLC in one state; you are merely preventing another from filing under the same state as a corporation or LLC in that same state.
What you are inquiring about is trademark protection. You’re not actually required by law to register a trademark. Use of a name instantly gives you common law rights as an owner, even without formal registration. However, you should consider trademarking your name for proper legal protection — after all, you’ve spent untold hours deliberating on the ideal name, and you’ll be spending even more cultivating brand recognition. Trademarks registered with the USPTO (US Patent and Trademark Office) enjoy significantly stronger protection than “common law” (unregistered) marks. In a future post, I’ll discuss the topic of protecting your business name and brand in more detail.
What if I am doing business under multiple names; are all my names including my website protected under my newly formed corporation or LLC?
If like most businesses you’re going to be operating under any variation of your official company name (i.e. CorpNet vs. CorpNet.com vs. CorpNet, Inc…), you will need to file DBAs for each of the variations. You should have your Corporation/LLC file the DBAs so they operate underneath your Corp/LLC.
The same holds true even if you’re going to operate multiple ventures (for example selling handmade soaps, knitwear, jewelry…) under the same company. You can establish one main company (i.e. Susy’s Corp) and then have Susy’s Corp file multiple DBAs for each of the specialized brands (i.e. Susy’s Soaps, Susy’s Knits…). This way each of the smaller companies can reflect the branding and presence best for their specific markets, yet still enjoy the legal protection of the main holding company.
Do I need to do anything else to keep my LLC/Corporation in good standing?
I’m going to address this issue in detail in my next post, but the short answer is yes…your work isn’t entirely done after you submit that initial paperwork. For both the LLC and Corporation, you’ll need to file an Annual Report (requirements vary by state). In addition, you’ll have to stay on top of any major changes (for example, did you authorize more shares? Did a board member leave?) by filing an Articles of Amendment. Stay tuned for my next post to learn more about how to keep your LLC or Corporation compliant.
As always, CorpNet.com’s professional staff is here to assist you every step of the way… And once you know what you’re required to file, we can take care of the details for you! If you have specific legal questions or concerns, you should consult an attorney for sound advice. After all, your business is worth it.
Please feel free to reach out to me with any questions to firstname.lastname@example.org ; I get you because I’m just like you and have been through this myself!
*Original content written by Nellie Akalp for Small Business Trends