Guide to Starting and Organizing Your Business
I’m in business! Now what?
Congratulations! You’ve decided to go into business for yourself, and maybe you’re already making money. Before you get too far into your next venture, make sure you’ve built a solid foundation for your business by using the following checklist, and then meeting with your attorney to make sure you’re covered:
Have a working business plan.
Creating a business is hard, but worthwhile work. Before you take the jump into business, make sure that you have thoroughly thought about the details of the business, including founder strengths and weaknesses, legal considerations, and the business plan.
Legally, in developing your business plan, make sure:
- Your governing documents adequately reflect your purpose and desired procedures in doing business
- You understand founder liability and relationship, including bringing in new partners, the sale of an ownership interest, vested rights, and the ability of an owner to withdraw.
- The management and voting procedures are well outlined
- The process for sharing profits, losses and distributions is defined and reflects the desires of all partners
- You understand the consequences of bringing in outside capital.
- You have rights to and are able to protect your intellectual property.
- The causes of dissolution and relationship of dissolution to winding-up and termination of the business
- The succession plan has been considered and planned for from the beginning of the business
Decide what entity and tax status makes the most sense for your business.
A business entity is an organization that has a separate identity from its owners or members, and owners should consider the nature and limits of limited liability and tax consequences that may stem from their choice of entity.
While business owners are not legally required to form an entity, creating an entity helps protect the business and owner with limited liability protection. Many business owners accordingly want to lessen the risk of losing personal assets to pay debts and claims against the business by placing the business in an entity that might provide a shield against such personal liability, at least to some extent.
Businesses owned by two or more individuals are often designed to limit liability by organizing as corporations, certain special types of partnerships or limited liability companies. Under Missouri law for businesses with two or more owners, limited liability can be obtained for the owners of a corporation (“Corp”) or a limited liability company (“LLC”), and for some or all of the owners in partnerships.
There are some exceptions to limited liability. If you form a Corp, LLC, LLP or LLLP, while you are generally not personally liable for that entity’s debts and obligations (beyond the assets you agreed to contribute to the entity), there are various ways you could become personally liable, placing the assets you own outside the business entity at risk as well. Briefly, the exceptions to limited liability include:
- Contractual guarantees by the owners,
- Failure to pay payroll taxes and adhere to other special statutes (such as liability for “operators” under the federal environmental statutes known as “CERCLA”),
- Personal negligence/wrongdoing (consider insurance to protect against this liability)
- Piercing the corporate veil, as described in the Creating a Parent Company blog post
- Failure to file annual renewals
Having a basic understanding of tax statuses will also help you determine which entity choice is best for your company. Visit the Business Tax Status Blog for more information on which status may be best for your entity.
(For detailed information on choice of entity considerations, visit the SEED Law Blawg here) or give us a call to set up a free consultation)
Formalize in the states that you’re operating in.
To formalize your business, you must first register with your Secretary of State’s office to legally operate your business within the state. Depending on your choice of entity, you will need to file with the Secretary of State and may need to also file annual reports.
Internally, there will also be a corporate governance document that does not need to be filed with the State, but is often mandatory to have. Governing documents outline the purpose of the business, management and financial rights and duties of the owners, how to get out of the business, terminate the business, etc.
Register with the Internal Revenue Service and your state’s department of revenue.
All businesses must register with the Internal Revenue Service to obtain an Employer Identification Number (aka Federal Tax ID number), which will function as the social security number for the business. The EIN allows the IRS to track wages and payment made by the business to employees and owners, and is required to set up a business bank account. For more information on how to interact with the IRS, visit the A-Z Index for Business or contact a representative from your local office.
Certain businesses also need to register with their states’ Department of Revenue. The state’s DOR is responsible for the administration of business tax laws, sales and use tax, corporation income tax, and franchise taxes. Please contact your local Department of Revenue to determine if you need to register.
Missouri Department of Revenue
Comply with local regulations and permits.
To operate your business legally, you must be aware of federal, state, and local regulations. Contact your City to determine if you need to acquire a business license, if there are any special licenses or permits required for your industry, and if there are zoning regulations for where you choose to locate your business.
City of St. Louis Business Resource
City of Overland Park Business Resource
Build your professional team.
Your business’ professional team should consist of an attorney, an accountant, a banker, and mentors. When choosing your professional team, make sure that the professionals you choose are business minded, that they know and understand your industry and business goals, and that they will be willing and able to leverage their networks for your business.
Connect to your local business community.
Being in business is easier when you’re connected to your local business community. As a business owner, you have the ability to generate wealth, contribute to the local economy, and create jobs. Make sure that you’re tied into a community of peers who understand the ups and downs of doing business, who will offer constructive advice and best practices, and who you can refer and recieve business to in order to holistically serve your clients.
After you’ve started and organized your business, check out the Top 10: Doing Business Well post!
For more information on how to grow and protect your business, visit SEED Law to get your free consultation.
Adrienne Haynes is the owner of SEED Collective and SEED Law and is the manager of an incubator for construction contractors. Her passions include the law, business coaching, and community building. Find her on twitter @Law4Innovators.
