ENTREPRENEURSHIP / JUL. 06, 2014
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How to Start a Business in the US

American culture and companies are ubiquitous. It’s no secret that some of the biggest companies in the world got their start in the US. Microsoft. McDonald’s. Coca-Cola. Apple. Facebook. The list goes on.

Care to throw your idea into the mix? Setting up a business in the US has a number of required steps regardless of which state you select as your homebase. For the purposes of this article, we are going to assume that you already a) have an excellent and well-researched idea, b) have written up a polished business plan and pitch, and c) have procured the financing to make it a reality. Here’s what you need to do to follow the letter of the law:

Step 1 - Decide on a Business Structure

Your business can take one of several forms in the US, with each one possessing its own set of pros and cons, not to mention its effect on the type and amount of taxes you’ll end up paying.

  • Sole Proprietorship - It’s you and you alone. This kind of simple structure keeps taxes easy, and is a (relative) breeze to get up and running. On the down side, there is no real separation between you and your business in terms of finances.
  • Partnership - Taking on one or more partners is a great way to divide the work and risk, but it also means you’re dividing profits. There is also not much protection in terms of liability for you and your partners.
  • Corporation - Your business is a separate and legal entity owned by you and your shareholders. A corporation is formed and governed by the laws of whichever state you start it in (so choose wisely). Check with the Secretary of State office to get all the specifics for your state. As a corporation, you can legally raise funds (or capital), and you’ll pay corporate taxes, which are generally a lower rate than personal income tax.
  • Limited Liability Company - An LLC is a mix of the best of corporations and partnerships. As an “owner” (aka a “member”), you’ll be responsible for all taxes (along with the other members). To form an LLC, you typically file the Articles of Organization with the Secretary of State, but each state in the US may have its own procedure, so again you’ll need to check the specific requirements.

For a handy comparison of the major types of structure available, check out this online reference to see the strengths and weaknesses of each.

Step 2 - Taxes

In addition to federal taxes, most states on the US also levy income and corporation taxes. Ignorance of the law is no excuse (you do not want to mess with the Internal Revenue Service), so you’ll need to do some homework here. Each state is different. Besides income (or corporate) tax, you should also expect to pay employment taxes. The Determine your State Tax Obligations page on the Small Business Administration website is a fantastic resource for all things related to taxes, including links to the appropriate places to register as a business entity in each individual state. You’ll also need your Federal Business Tax ID (aka Employer Identification Number, or EIN). You can usually apply online. Finally, be aware that some (though not all) states require you to get a state tax ID as well.

The IRS has a great section called Small Business and Self-Employed Tax Center that should answer most, if not all, questions.

Step 3 - Business Licenses and Permits

Certain businesses and industries require a federal permit, such as those involving the sale of alcohol or firearms. Virtually every state requires a permit of some sort. It obviously depends on where you set up, and the type of business you’re creating. The Small Business Administration provides a great search tool - Permit Me - that will give you the links and information you need by inputting the state or zip code and business type into their search engine.

There may also be mandatory insurance considerations dependent on your state and type of business.

Other Useful Links

Setting Up a US Company as a Non-Resident

Ten Steps to Starting a Business

State Government Websites for Tax Resources and Information

Hire Your First Employee

Ultimately, where you set up is going to dictate what you have to do. There is far too much that is geographically dependent than could be listed here. Some states require a separate state tax ID number. Others don’t. Some states require that you register your “doing business as” name. Others don’t. The good news is that virtually everything you need to know, and everything you’ll need to apply for, is available online. Use the keywords “starting a business in [name of state]” to quickly and easily find the specific and precise details that you need.

Photo courtesy of Pixabay

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