Shortcut to Business Formation: Comprehensive 2024 Guide

Starting a business is exciting, but the formation process can feel overwhelming. This guide will help you navigate the steps to form your business, whether you’re aiming to create an LLC, Sole Proprietorship, S Corp, or C Corp. We’ll highlight top business formation services to make the process even easier. Let’s get started!

 

Understanding Business Structures

Before diving into the steps, it’s essential to understand the different business structures available:

1. Sole Proprietorship: The simplest form of business. It’s owned and run by one person, with no distinction between the business and the owner.

Read our blog to understand more about Sole Proprietorship: Essential Tax Forms for Sole Proprietorship: A Complete Guide 2024

 

2. Limited Liability Company (LLC): Offers liability protection like a corporation but has the tax benefits of a partnership.

Read our blog to understand more about LLC:

• Switching to an LLC: Is It Right For You
• Utilizing a DBA for Your LLC: A Complete Guide
• The Role of Operating Agreements in LLC Management
• Your LLC Taxes: A Guide to Understanding and Managing LLC Tax Obligations 
• Effortless Payroll Guide 2024
• Financial Planning for New LLC Owners: Essential Tips & Strategies 
• Protecting Your Assets: Avoiding Personal Liability in an LLC 

 

3. S Corporation (S Corp): A special type of corporation that allows profits to be passed directly to owners’ income without being subject to corporate tax rates.

Read our blog to understand more about S Corporation:

• S Corporation Explained: Is It Right for Your Business in 2024? 
• Understanding Reasonable Salary in S Corporations

 

4. C Corporation (C Corp): A traditional corporation where the business is taxed separately from its owners.

Read our blog to understand more about C Corporation:

• C-Corp vs. S-Corp: The Crucial Reasons to Consider Before Forming C-Corp

 

Using an LLC Formation Service

Small business entrepreneurs can benefit from online LLC services to establish their Limited Liability Companies (LLC). These services will help file the necessary documents, allowing small business owners to focus on running their businesses. They have features like guaranteed acceptance by the state, assistance with the EIN application, registered agent service, and drafting of operating agreements. Online LLC services can be a reasonable and worthwhile cost.

Business owners can customize these packages to suit their individual needs. If you want to compare services and costs before deciding, you can choose from several options. Northwest Registered Agent, Swiftfilings, and Bizee LLC services are the most popular choices and have the best ratings.

 

Step-by-Step Guide to Forming an LLC

General Steps (Detailed for All 50 States)

While each state has specific requirements, the general steps to form an LLC are similar across the board. For state-specific guides, you can visit StartupWise’s state LLC guides.

 

Step 1: Choose a Business Name

The first step in creating your LLC is picking a unique name. Every state has specific guidelines for naming your LLC, including the need for the name to differ from other businesses registered in the state.

Here are the common guidelines you must follow: 

• The name must include “Limited Liability Company” or one of its abbreviations (LLC or LLC).
• The name can’t be the same as or too similar to other business names registered in that state. You can check for name availability on the Secretary of State’s website.
• Certain restricted words (like Bank, Attorney, or University) might require additional paperwork and a licensed professional to be part of your LLC.

 

You can do a quick, free name check to see if your chosen name is available. If you are considering getting a website name that matches your business name, You can find good deals for your domain names on Namecheap.

 

Step 2: Hire a Registered Agent

Like in other states, your LLC must have a registered agent in your chosen state. A registered agent is a person or company that agrees to receive legal papers on behalf of your LLC, ensuring you get all important legal notices. The agent must have a physical address in your chosen state and be available during business hours. You can act as your registered agent, choose someone you trust, or hire a professional service like Northwest Registered Agent, Swiftfilings, or Bizee.

 

Check out our blog: ‘Is a Registered Agent Necessary> Your Guide to Finding an Affordable Option.‘

 

Step 3: File Your Certificate of Formation/Article of Organization

Let’s make your LLC official by filing the Certificate of Formation/Article of Organization. This document is crucial as it formally registers your LLC with the state. Here’s what you need to include in your Certificate of Formation:

• LLC Name: Ensure you include the full legal name of your LLC, followed by “LLC” or “Limited Liability Company.”
• Mailing Address: If your business receives mail at a location different from its physical address, list that here.
• Registered Agent: Designate a registered agent who will handle official documents for your LLC. Include their full name, address, and contact information. They must formally agree to act as your registered agent.
• Management Structure: Indicate whether your LLC will be member-managed (by you and any other owners) or manager-managed. List the names and addresses of the members or managers. For privacy, you may use a P.O. box for addresses.
• Purpose: Provide a brief description of your business.
• LLC Organizer: Identify the person or entity completing and filing your work. This role is crucial for correctly setting up your LLC.
• Formation Date: Specify the date your LLC will officially begin. You can set this to the filing date or choose a date up to 90 days.
• Signature: After reviewing your Certificate of Formation for accuracy, sign and date the document. Ensure your registered agent has consented to their appointment.

 

How to Send Your Form

When you’re ready to establish your LLC, filing your Certificate of Formation/Article of Formation is crucial. This document officially registers your business with the state. You can file your Certificate of Formation/ Article of Organization online, by mail, or in person. 

 

Filing Fee: The fee for filing the Certificate of Formation differs in every state.

Filing the Certificate of Formation/Article of Organization is necessary to establish your LLC and avoid delays in processing your application.

 

Step 4: Making an Operating Agreement for Your Business

Let’s discuss setting up some ground rules for your business. This is where an Operating Agreement comes in. Think of it as a handbook that explains how your business runs. It’s important because it helps everyone understand their role and what’s expected in your LLC.

 

Here’s what an Operating Agreement usually includes:

• Ownership: This part talks about who owns what percentage of the business. 
• Member’s Rights and Responsibilities: Here, you’ll write down what each person in the LLC can and cannot do and what they’re responsible for. It’s like a job description for each member.
• Joining & Leaving: This section covers how new people can enter your business and what happens if someone decides to leave. It’s good to have this figured out so there are no surprises later.
• Dissolution: This might sound a bit gloomy, but it’s practical. It’s about how to close down the LLC if you ever need to. It includes the steps to take and how to handle everything when wrapping up the business.

 

Creating an Operating Agreement is a smart move. It keeps things clear and organized so everyone knows what to expect, and it can save you a lot of time. 

 

Step 5: Getting Your EIN from the IRS

Your business needs a number called an EIN from the IRS. It’s like an ID number for your business. This number will help you as an identification number when getting bank accounts and credit accounts, filing taxes, and hiring employees.

It’s free, and you can get it from the IRS website.

 

Step 6: Steps After Forming Your LLC 

Open a Business Bank Account 

Keeping your personal and business finances separate is crucial for financial management and legal protection. Opening a business bank account requires your EIN and Articles of Organization. It makes tracking business expenses easier and simplifies tax filing.

 

Get a Business Credit Card

A business credit card is an excellent tool for handling business purchases and can help build your company’s credit history. Just like with personal credit, a good business credit score can make it easier to get loans and may qualify you for better terms. Visit our website to see our favorite business cards.  

 

Hire an Accountant

Managing finances can get complicated, especially as your business grows. An accountant can help you navigate tax laws, handle bookkeeping, and plan for financial growth. This professional guidance can save you time and money in the long run.

Create a Professional Website 

A website makes your business look legit. WordPress is a great tool to build your site. You can check out SiteGround or Hostinger for web hosting. They’re both good options to get your site up and running.

 

New 2024 Reporting Requirements (BOI)

Effective from January 1, 2024

Big news! Starting January 1, 2024, there are new reporting requirements for both domestic and foreign reporting companies. This includes LLCs, corporations, and other entities. Here’s what you need to know:

 

First Report Deadlines:

• Existing Entities: If your LLC was already around before 2024, you’ve got until January 1, 2025, to submit your first report.
• New Entities: If you’re forming your LLC in 2024, you must file your report within 90 days of your company’s creation.

 

Who Needs to Report:

• Domestic Reporting Companies: This includes LLCs and similar entities within the U.S.
• Foreign Reporting Companies: Entities registered foreign entities must also adhere to these new rules.

 

Exceptions to Reporting:

• For specific exceptions, you’ll want to refer to the Beneficial Ownership Information Reporting Regulations at 31 CFR § 1010.380(c)(2) and the Small Entity Compliance Guide.

 

What Must Be Reported

What you need to report is all about transparency. The exact details can be found in the compliance guide, but it generally involves information about your LLC’s ownership and control.

 

When Must Reporting File Reports

Remember, if you’re an existing entity, your deadline is January 1, 2025. For new LLCs formed in 2024, it’s within 90 days of creation.

 

Filing Reports & Noncompliance Penalties

Starting January 1, 2024, all BOI reports must be filed electronically. Here are some critical points:

• Filing Before the Date: You must file on January 1, 2024.
• Accuracy: Filer certification of accuracy is mandatory – you need to double-check that everything you report is correct and accurate.

 

Penalties for Noncompliance:

• False Information Penalties: Mistakes or misinformation can result in a fine of up to $10,000 or up to two years in prison.
• Penalties: If you slip up here, you could face a fine of up to $10,000 or even imprisonment for up to 2 years.
• FinCEN’s Approach: The Financial Crimes Enforcement Network (FinCEN) focuses on education and outreach to ensure compliance. 
• Safe Harbor Rule: Did you make a mistake? If you discover inaccuracies in your initial report, you have a 90-day grace period to submit a corrected report.

If you need more information or specific guidance, please visit the FinCEN website for all the details.

 

Conclusion

Wrapping up and forming a business doesn’t have to be daunting. Whether you’re setting up a Sole Proprietorship, LLC, S Corp, or C Corp, understanding your options and following a structured plan can simplify the process. Utilizing professional services and adhering to new 2024 reporting requirements will ensure your business is compliant and well-prepared for success. Remember, every great business starts with a solid foundation, so take these steps confidently, and you’ll be well on your way to building a thriving enterprise. For more detailed guides and resources, check out our linked articles and stay informed on the latest business formation trends.