View all the posts in the Starting Out for Start Ups blog series HERE.
Now that we’ve established that you’re starting your own business, there are a few things to lay out there. When first starting up, you’ll need to decide what type of business yours will be.
- A sole proprietorship?
- A partnership?
- An LLC?
- A corporation?
If seeing these terms all laid out in a row is making your heart race and your hands go clammy, you’re not alone. This might be the most intimidating part of the business start up process because it feels so high stakes and permanent. And, yes, these different business structures have different tax implications. However, there are a few things to keep in mind:
:: you can change your business structure down the road. If you start out as a sole proprietorship but later decide to incorporate, you can.
:: your business structure (mostly) matters in proportion to your revenue. Leaving aside non-profit and co-operative entities, EF often advises not to waste time agonizing until you’re raking in money. In the beginning, a sole proprietorship, partnership, or LLC are all perfectly good – and easier to set up than one of the corporate structures.
:: if you need to change your business name, you can. You’ll simply need a DBA. DBA stands for ‘Doing Business As’. Here’s an example: the legal name of Elysian Fields is Elysian Fields Baseball, LLC. Way back when, Morris created this LLC when he was working to purchase a minor league baseball team (true story). Once he switched gears and joined forces with Kate, they decided to use the Elysian Fields Baseball, LLC to house their new consulting business. LESSON: Sometimes you just need to get going, and when you have an extra LLC laying about, use it. But… baseball? Baseball was nixed, and they filed a DBA with the PA Department of State. This form is called the DSCB: 54-311 and costs $70 to file. If you’re using a fictitious name but you haven’t registered it with the Department of State, you can’t use the Pennsylvania courts to enforce any contracts that you entered using your fictitious name. Protect yourself and your business. Complete the DBA paperwork here.
I recommend talking to a lawyer when first getting your business off the ground because they can give you valuable advice about which type of entity is the best fit for your budding business. Since I know you all to be self-empowered entrepreneurs, I encourage you to familiarize yourselves with the different business types. The PA Department of Community and Economic Development’s extensive Entrepreneur’s Guide has an entire chapter dedicated to this topic. Here you can read about the different different certificates, registrations, and general paperwork that are specific to each business entity.
Filing the paperwork to establish your business’s structure sets you up with a public record. Now your business is its own distinct entity.
But that’s not enough to launch your start up into full-on business operations. You need a few other items under your belt.
:: First on this list: registering with the IRS for an Employer Identification Number (EIN). An EIN is the business’s equivalent of a social security number. All businesses except Sole Proprietorships are required to have an EIN. You’ll need it to open a business bank account, pay taxes, and hire any employees. It’s free to get one and you can do it online here.
:: Next up: the PA-100. You’ll need to fill out this form if you are conducting retail sales (hello sales tax!) or have employees. The PA-100 sets you up to file and pay sales tax and for employer tax withholding. It is also free and you can complete it online here.
:: Last of all: the Philadelphia Commercial Activity License. Any business operating in Philadelphia needs this license. Thankfully, it’s also free. Access the application here.
As you can see, starting your business requires a small pile of paperwork. But after completing these forms, you have the green light to commence operating your business.
Next week I’ll discuss how to develop the best professional support team for you and your business (aka lawyers, accountants, consultants, etc.) Delegating certain tasks will be essential as you grow your business. So what should you be doing yourself? And what should you hire others to do?
Post any questions in the Comments and check back in next week.
Image found here.