New Business Setup, part 2: Company Formation

At this point we have a team, an idea, increasingly detailed plans, and online business infrastructure. The time has come to legally exist — mostly because we need to start spending money — which requires a bank account — which requires a small set of magic documents I’ll describe below. This post describes the steps to becoming a recognized business entity.

(See also part 1 of this series, App Infrastructure)

Formation Documents

On advice of Brian the Lawyer, we organized as a “Manager Managed LLC” in the state of Texas. When/if we expand beyond a single location, we’ll probably re-organize as a Delaware C-corporation, but this structure is simple and sufficient for now. I’ll refer to the specific forms we needed for Texas; if you’re in another state this will at least help you know what to look for.

Your business must have a unique name, of course. Step one is to do a name search — for us, at the Texas Secretary of State. “Vigilante”, alone, hit against several existing entities and so we chose the pedestrian official name “Vigilante Gaming Bar, LLC”.
Next we filled out two forms: the “Certificate of Formation” — in Texas, that’s form #205 — and the “Payment Form 807” for the $325 expedited formation fee.
… and of course you may only submit the forms by fax or regular mail. If you want expedited handling, you must supply a return fax number too. We signed up for myfax.com, which had pretty simple sign up and let us send the documents with a cover sheet. I’ll report back later on how simple it is to receive faxes and to deactivate the account.

Taxes and Money

If everything works, we will in the next few days get a Certificate of Filing faxed back to us from the Secretary of State.
Once we have the Certificate of Filing, we will go to the IRS and create an EIN. That form is HILARIOUSLY governmental. There are hard-working humans in the loop from what I can tell, but the process only takes 15 minutes. Once complete, we will have an EIN — the business equivalent of a Social Security Number, the handle that other official institutions use to know we exist.
Within a couple weeks, we will also get a letter from the Texas Comptroller for Public Accounts. This gives us our Texas Taxpayer Number and other information.

Bank Account

Once armed with the EIN, we will head off to the local Wells Fargo and sign up for an account. We’re seeding the account with money as a straight up minimal interest loan on a short repayment schedule; once our actual financing comes through we’ll pay ourselves back for the seed money.

Next is ADP orientation, AKA The Greatest Sales Pitch I’ve Ever Experienced. I unequivocally recommend it to any new company. ADP, the payroll processing company, will send two representatives to meet with your new company and explain every single regulation, guideline, loop and loophole, form and process you will need to follow in order to be conducting business correctly by state and federal law. They will give you the poster you need to display in some employee-accessible general room, they will explain how to file unemployment tax, and they will explain the horrible horrible consequences if you fire someone and they go on unemployment. In short, they will tell you in plain and actionable detail exactly how to not need the services ADP provides. I’ve never been readier to sign up for a service than after hearing all the things we wouldn’t have to worry about and track.

Company Agreement

At this point, the government certifies you exist, but it’s still not defined what that existence is. Your lawyer will help you draft a Company Agreement that defines things like the equity split, voting rights, and so forth. We are using Brian Alford, who I worked with at Infochimps and recommend.

Summary

Formation is totally straightforward once you know the steps, which luckily my friend Joe coached me through. I cry to think how much effort and uncertainty this would have cost us without his help; if this blog post helps someone else down the road.