Congratulations! You have officially registered your Limited Liability Company or Corporation with the state. But now what? What happens next?
While forming an LLC or Corporation is a critical first step to operating a formal business entity, there’s more work to do to keep it legitimate and in compliance. The tasks and filings vary depending on a company’s growth objectives, type of business activities, and location.
In this article, I talk about what comes after incorporation and I’ll share some of the obligations that entrepreneurs must fulfill. However, keep in mind that your particular situation may come with a less (or more) extensive list. To fully understand your responsibilities, it’s important to research what’s required at the local, state, and federal level for your business. Consulting a business attorney and accountant or tax advisor will help. And CorpNet offers some tools and services to assist in that process as well, which I’ll explain throughout this blog post.
Step 1. Create and Execute Organizational Documents
After the state approves a business’s formation documents (Articles of Incorporation for a Corporation or Articles of Organization for an LLC), the business must create and execute documents that define its internal governing rules for how the company will operate. In the case of a Corporation, that means preparing bylaws. In the case of an LLC, that means preparing an LLC Operating Agreement.
You can find templates online for bylaws and LLC Operating Agreements. With both having legal ramifications, it’s helpful to have an attorney review them before executing them.
Bylaws include details such as the number of directors the company will have on its board of directors, when and where its board of directors’ and shareholders’ meetings will be held, how corporate officers are appointed, and the duties and powers of directors and officers. In most states, bylaws must be approved by the Corporation’s board of directors, usually at the first board of directors meeting.
LLC Operating Agreement
An LLC Operating Agreement lays the ground rules for operating an LLC, such as defining LLC members’ responsibilities, how membership interests can be transferred, how profits and losses are allocated, and more. Usually, an LLC won’t have to file its operating agreement with the state. However, it may be required to keep the document at the business’s principal location.
To save you time and money, CorpNet offers customizable templates that can help you create these vital organizational documents.
Step 2. Get an EIN
An LLC or Corporation must obtain a federal tax ID number from the IRS. The unique 9-digit number is also called an Employer Identification Number (EIN). Its primary purpose is to identify a company when filing tax returns. Despite the reference to “employer,” an LLC or Corporation needs an EIN even if it doesn’t hire employees. Besides an EIN being a legal requirement, many banks ask for an EIN before allowing a company to open a business bank account.
Businesses that previously had an EIN as a Sole Proprietorship or General Partnership must obtain a new federal tax ID number when they form their LLC or incorporate.
The IRS issues EINs to eligible applicants at no charge. Note that the person applying online for the EIN must have a valid taxpayer identification number (either SSN, ITIN, or EIN). You can find other eligibility details and restrictions on the IRS.gov website. IRS Form SS-4, the EIN application, is rather straightforward. However, if you would like to save time and gain peace of mind knowing that it’s handled correctly, contact CorpNet for assistance.
Step 3. Talk with a Tax Advisor About Your Tax Treatment Options
Businesses can benefit from talking with a trusted accountant or tax advisor about the most optimal way to have their income taxes treated. They can offer clarity on tax deductions available to LLCs and Corporations. And they can advise on whether the default tax treatment or S Corporation election might offer more favorable financial results.
An LLC’s profits and losses pass through to its members’ personal tax returns. In addition to paying income tax on profits, members must also pay self-employment tax (Social Security and Medicare taxes) on all business profits.
A C Corporation is considered an independent tax-paying entity. Therefore, the company must report its profits and losses on its own income tax return and pay any taxes due. The owners (shareholders) pay taxes only on their dividend income and wages and salaries from the business. Some of the business profits are “double taxed”—when profits paid as dividends to shareholders are first taxed to the Corporation and then again on the shareholders’ individual tax returns.
In some situations, S Corporation election may be beneficial. For an LLC, S Corporation election may reduce the self-employment tax burden that LLC members must pay. Only members’ wages and salaries from the business, rather than all company profits, are hit with Social Security and Medicare taxes. Profits that members receive as distributions are not subject to self-employment taxes.
For a Corporation, S Corp election changes the tax treatment to a pass-through methodology whereby the business does not complete a tax return or pay income tax. Instead, profits and losses flow through to the shareholders’ individual returns. This eliminates the double taxation that occurs with default corporate tax treatment.
Income tax scenarios can get tricky, and many factors affect the outcomes, so it’s wise to seek professional guidance.
Step 4. Open a Business Bank Account to Keep Business Funds Separate from Personal Monies
To maintain the “corporate veil” that separates a business entity from its owners legally, an LLC or Corporation must set up a business bank account. Doing so also streamlines accounting and tax reporting. Most banks request to see a business’s formation documents, organizational documents, and EIN before opening the bank account. Entrepreneurs who have a bank account for their Sole Proprietorship or Partnership will likely have to close that account and open a new one under the Corporation or LLC.
Step 5. File DBAs
If a company will operate under a different name than its legal name, it will need to file a DBA (a.k.a., fictitious name registration). For example, if an automotive sales and service business named “Hargraves and Company, Inc.” wants to market its repair services as “Ready to Roll Vehicle Repair,” it would need to file a DBA for that fictitious name. Some states will even require a DBA if a company uses a less formal variation of its name (e.g., “Hargraves and Company” instead of “Hargraves and Company, Inc.”)
Before submitting a fictitious name registration to the state, it’s helpful to do a name search to see if another business already claims the name. You can use CorpNet’s free business name search tool to verify that a fictitious name won’t conflict with another company.
Step 6. Register your Business Domain Name
Ideally, business owners will consider this before they register their business entity. If not, this is a good task to complete as soon as possible because a business’s online presence will be one of its greatest marketing assets. Having a website address (URL) that’s the same or closely related to the business name or DBA makes it easy for prospective customers to find a company online. Several tools that can help identify if a domain name is already in use or available include:
Step 7. Foreign Qualify if You Plan to Operate in Other States
If an LLC or Corporation will operate in other states beyond the one it’s registered in, it has to go through a process called “foreign qualification” (i.e., qualify as a foreign entity in the state). Generating revenue from another state does not necessarily mean a business must foreign qualify there. Some of the signs that foreign qualification may be required include:
- The LLC or corporation has a physical presence (such as an office or retail location) within the state.
- The LLC or corporation has set up a bank account in the state.
- The LLC or corporation has applied for a business license in the state.
- The company has employees that work in the state.
- Much of the company’s revenue comes from the state.
No matter which state(s) your company wants to foreign qualify in, CorpNet can assist in preparing and filing the required paperwork.
Step 8. Apply for Business Licenses and Permits
Nearly all businesses need some types of licenses and permits to operate legally. Depending on the industry, business functions, and location, there may be federal, state, and local requirements. Resources that can help business owners identify their needs include attorneys, local municipalities, county government offices, Secretary of State offices, and the U.S. Small Business Administration. CorpNet can take you a step further with our Business License Compliance Package. We can assist in identifying the required licenses and permits and preparing and submitting the applications for your business.
Step 9. Register for Payroll Taxes
A business that will have employees (including LLCs that opt for S Corp election because owners are on payroll) must register to withhold, report, and pay payroll taxes. Taxes such as federal, state, and local income taxes and Social Security and Medicare taxes must be withheld from employees’ paychecks, reported, and remitted to the appropriate taxing authorities. Other payroll deductions from workers’ wages might include child support payments, retirement fund contributions, unpaid sick time, union dues, and others. Also, there are payroll-related fees that often are not deducted from employees’ compensation but must be paid by the employer (e.g., Federal Unemployment Taxes (FUTA), state unemployment taxes, workers compensation insurance).
As you can imagine, payroll can become complicated! It’s helpful to talk with a payroll expert to ensure you have all your ducks in a row. And you can turn to CorpNet to take care of registering your business for the required state and local payroll tax accounts needed to hire employees, set up payroll, and file tax returns.
Step 10. Protect Your Brand with a Trademark
Although registering an LLC or Corporation protects a company’s business name in its state of formation, businesses in other states may use the same name, even if they provide similar products and services. While that might not cause an issue for a local landscaping company that only has its sights set on serving its nearby communities, it can create a competitive problem for businesses that sell goods and services to customers in other states.
A federal trademark granted by the USPTO (U.S. Patent and Trademark Office) will help protect a business name in all 50 states. A registered trademark gives its owner exclusive rights to the business name (for the category of goods or services on record), making it easier for the company to bring a suit in federal court if someone else begins to use the name.
A trademark search using the USPTO’s trademark search database (TESS) and CorpNet’s free trademark search tool can help you identify trademark availability. It’s also wise to consult a trademark attorney for further assistance in ensuring a business name will be likely to be approved as a trademark. CorpNet can help you further, too, by preparing and submitting your federal trademark application.
Step 11. Prepare for Entering Into Contracts
When working with clients, vendors, suppliers, strategic partners, and others, businesses will need to prepare and execute various contracts. Having written agreements help to ensure that both parties involved understand their responsibilities and rights. Contracts legally bind the parties to the terms, conditions, policies, and other provisions set forth within them. You can find a wide variety of templates online for different types of contracts, including NDAs (non-disclosure agreements), confidentiality agreements, property and equipment lease agreements, sales contracts, general business contracts, and more.
Step 12. Keep Your Business Compliant
Business owners must keep up with ongoing compliance formalities after incorporation of a company. For example, some states require LLCs and Corporations to file an Initial Statement of Information after registering their businesses. Also, many states require that companies submit an Annual Report each year (although some—such as Pennsylvania with its Decennial Report—have a different deadline structure). Other possible responsibilities include submitting tax returns and paying taxes on time, holding LLC member or shareholder meetings and recording minutes, renewing licenses and permits, renewing registered agent services, and others.
I can’t over-emphasize the importance of business compliance! One of the main reasons to form an LLC or incorporate is to limit business owners’ personal liability.
Entrepreneurs who fail to keep their businesses in good standing risk losing that liability protection.
Attorneys, accountants, and the Secretary of State office can educate you on your responsibilities. At CorpNet, we provide our free online Compliance Portal to help you monitor upcoming requirements so that you can avoid letting anything slip through the cracks.
Make Calling CorpNet Your Next Step after Forming Your LLC or Incorporating
No matter what stage of growth your business is in, my team at CorpNet is here to help you with all of your filings after you’ve registered your company. We can help you maintain your business and help you stay in compliance as your business evolves.
Contact us today about obtaining a Federal Tax ID Number (EIN), filing a DBA, getting a template for your bylaws or LLC Operating agreement, applying for a trademark, getting business licenses, and more!