“The vision must be followed by the venture. It is not enough to stare up the steps; we must step up the stairs.” —Vance Havner

Welcome to Part 2 of our National Entrepreneurship Week Series. Every day this week, we will post about a topic surrounding entrepreneurship. Part 1 of the series explored generating the concept or idea for a business. Today, we will discuss the steps of moving from concept to company. 

‍“The best companies are born of ideas, necessity, innovation, and love. A company is a legal entity that engages in business; by definition, it’s not an idea, a process, or even a product.”‍

Step 1: Determine the Legal Structure of Your Business

Decide which form of ownership is best for you: sole proprietorship, partnership, limited liability company (LLC), corporation, S corporation, nonprofit, or cooperative. Your form of business (e.g., sole proprietorship, partnership, LLC) determines which income tax return form you will be required to file. 

The next step is to create your business entity and register that entity with the proper agency (typically the Secretary of State) in the state where your business will be located. Each state has separate laws, but a relatively simple Google search can assist you in figuring out your state’s business formation laws. You also need to ensure that you select the most advantageous type of business entity—one that will provide you with the best and most comprehensive legal protection. The filing procedure typically requires the following: 

• Paying a filing fee
• Submitting articles of incorporation/organization 
• Identifying a registered agent who is designated to receive formal correspondence from the state, federal government, and other legal notices

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Step 2: Register Your Business & Business Name 

Once you decide on a name, you must make sure you can legally use that name. If you can use it, you must then legally protect it. Even if the name of your business is a part of your name, product, or locale, you should still check to ensure it’s not already being used. 

Additionally, for branding purposes, you don’t want confusion in the market between your company and another, as that can hurt your business. Not to mention, if it hurts a pre-existing business, that could lead to a costly lawsuit. To help prevent this, visit the Secretary of State’s website in the state where you plan to start your business and search the registered business names to ensure there isn’t any overlap. Also, visit the U.S. Patent and Trademark Office (USPTO) website to ensure there aren’t any name, logo, or trademark conflicts. 

Also of note, when you are choosing your business name, be mindful of the IRS’ character restrictions. The only characters the Internal Revenue Service’s systems can accept in a business name are as follows: alpha (A-Z), numeric (0-9), hyphen (-), and ampersand (&). If the legal name of your business includes anything other than those listed above, you will need to decide how best to enter your business name into the online Employer Identification Number (EIN) application.

When registering your business and business name you should also consider:

• Articles of Incorporation. A set of formal documents filed with the state to legally document the creation of a corporation. Articles of incorporation must contain pertinent information, such as the firm’s name, street address, agent for service of process,* and the amount and type of stock to be issued (if issuing stock). _{*An agent for service of process is a person who receives lawsuits and other documents on behalf of your business and is also referred to as a registered agent.} 

• “Doing Business As” Name. A fictitious name (or assumed name, trade name, DBA name) given to a business; it is different from your personal name, the names of your partners, and the officially registered name of your LLC or corporation.

It’s important to note that when you form a business, the legal name of the business defaults to the name of the person or entity that owns the business, unless you choose to rename and register it as a DBA name. The legal name of your business is required on all government forms and applications, including your application for employer tax IDs, licenses, and permits.

Step 3: Get a Tax Identification Number

An Employer Identification Number (EIN) is also known as a federal tax identification number; it is used to identify a business entity. Generally, businesses need an EIN. You may apply for an EIN in various ways, including the option to apply online. Check with your state to determine if you will also need a state number or charter.

Step 4: Register for State and Local Taxes

Register with your state to obtain a tax identification number, workers' compensation, and unemployment and disability insurance. In addition to business taxes required by the federal government, you will need to pay some state and local taxes. Each state and locality has its own tax laws. Knowing your state tax requirement can help you avoid costly problems and save time and money. The most common types of taxes for small businesses are income taxes and employment taxes.

• Income Taxes. Nearly every state levies a business or corporate income tax. Your tax requirement depends on the legal structure of your business. For example, if your business is an LLC, the LLC gets taxed separately from the owners, unlike the way sole proprietors report their personal and business income taxes using the same form. Consult the general tax information in your state for specific requirements.
• Employment Taxes. In addition to federal employment taxes, business owners with employees are also responsible for paying certain taxes required by the state. All states require payment of state workers’ compensation insurance and unemployment insurance taxes.

Step 5: Obtain Business Licenses and Permits

Get a list of federal, state, and local licenses and permits required for your business.

• Federal Licenses and Permits. Certain businesses, like ones that sell alcohol or firearms, require a federal license or permit. Be sure to research which ones impact your business and what you need to comply with these laws. 
• State Licenses and Permits. Some states have requirements for specific businesses. Find out what business licenses and permits you need in your state.
• Business Licenses and Permits. The U.S. Small Business Administration (SBA) has a tool to determine which licenses and permits you need to start and run your business.

Step 6: Protect Your Intellectual Property 

Intellectual property is a work or invention that is the result of creativity, such as a manuscript or a design, to which one has rights and for which one may apply for a patent, copyright, trademark, and more. During the formation of your company, it is important that you register and protect your company’s logo to protect your brand. If there are any other materials that warrant intellectual property protection, you should protect those as well. Granted, depending on what those materials are and how you intend to use them, they may be registered later. Our next post in this series is dedicated to this topic. 

Step 7: Create Standard Agreements 

Creating and utilizing standard agreements, such as non-disclosure agreements and noncompete agreements, and protecting the organization’s intellectual property not only guards the organization but also adds value that could enlarge the opportunity to create social impact. To underscore their importance, we have a couple of posts in this series on standard agreements as well. 

Diplomatic Enterprises specializes in working with entrepreneurs, startups, and small businesses to help form and grow their companies and create and strengthen their brands. If you’re ready to take the leap, or you already have but want to find new ways to bolster your efforts, call or email us for a free consultation. Come back tomorrow for Part 3 of our National Entrepreneurship Week Series: Protecting Your Intellectual Property.