Form Your Small Business Nice and Easy
If you think it takes a few grand and a lawyer to get a legal identity your small business, you are wrong. Unless you have a complex and very profitable business, in which case you'd better ask for professional's help, frming a small business, no matter in the form of LLC, LLP, S corporation or C corporation, is an easy job you can even do it yourself with nominal cost and some personal time.
Even when it comes down to the DIY path, there are two ways to get it done: a nice way and an easy way.
A nice way involves you buy some DIY materials and spend hours to do it yourself (and get it right). A quick search on Amazon will turn in dozens of books teaching you to do it DIY. For example: Ultimate Book of Forming Corps, LLCs, Partnerships & Sole Proprietorships only sells for $15.61 anew, and it gives you step-by-step guide for forming your business, and even operating tips after your formation. If you are willing to spend dozens of hours following the book meticulously and making sense of everything, you should be able to have your corporate identity set up with less than $150 (extra expenses primarily involves some state filing fees and postage).
If filing in the correct way is very important to you, and you are not very sure you can do a dozen steps correctly by yourself, spending a little more money (and considerably less time) is your easy way to go. A search of phrases like "LLC", "incorporate business" and "S corporation" gives you tens of online sites that will help you get the filing done. I actually followed the second path and chose BizFilings.com to help me setting up a C corporation in the state of Delaware. Amazingly, the process only involves you supplying some basic information as names and contacts of officials and intended scope of your business (which you can write a generic "all activities allowed by law") and you are done.
The site offers a basic $99 plan that completes the actual filing, a $229 plan for some extra perks like expediated service, corporate kit and seal, and a useful resource CD, and a high-end $349 plan that helps you to get your tax ID and S corporation status and more perks like overnight shipping. (All the above prices do not include state fees.)
You don't even have to pay this much: following this link for U.S. Chamber of Commerce members and you can get $35 to $100 off each package. I followed the link and picked up the second package, and it only cost me $154 + $89 state fee to get the job done for a total of $243. (Hint: You don't have to be a U.S. Chamber of Commerce member to use this link.)
The actual process took about two weeks and BizFilings.com will send you the formation documents, the kit and the seal. I know BizFilings.com makes a fat margin on this, but it at least saved me ten hours and is well worth it.
You will still have to complete a couple more tasks. First off, you will need to obtain a tax ID for your business. You can do it online at IRS's web site here. Once you submit your information, you will be given a provisional Employer Identification Number (EIN) immediately, and IRS will notify you in two weeks if there are any issues with your application.
The second task involves you bringing your Article of Incorporation and the EIN to your bank of choice to open a business checking account. I went to my local credit union, which I have been doing business for three years, and got the checking account in about 30 minutes.
Still, it takes some time and energy to stay on top of the regulatory requirements like regular board meetings, annual tax filing and annual reports along the way (especially if you incorporate as a C corporation). For this, I'll rely on BizFiling's comprehensive BizComply tool to make sure I meet all requirements.
Running a small business is an interesting business, and I'm glad I'm off a good start.
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Does BizFilings.com prepare an LLC Operating Agreement if you form an LLC? I've heard that without an OA, one risks piercing of LLC liability in court.
Excellent post, MM. I am curious -- do you think it's worth starting an S Company, proprietorship, or LLC if your planned revenue for the first year is less than $1,000? In your case, before forming the company, did you get any revenue from your activity, and if you did, were there any issues that came up during tax time, dealing with expenses, etc. that made you wish you had set up a company first?
good info...thanks for posting it
FO: Yes, last year I received some sideline income from Google and other advertisers at PFBlog and I expect to continue to receive such revenue, and this is the primary driver for this tax discussion series. Tax on self-employment income is pretty significant, considering the self-employment tax and income tax. Now that I'm looking at low five figures sideline income for 2005, it does make sense for me to deploy some tax strategies.
To answer your question, no, I don't think it is worthwhile to set up a businese entity for less $1,000, but if you expect the revenue to grow significantly in coming years, it's a different question.
