Business entity formation is the very first step of starting a business, whether you're registering a simple DBA, incorporating, or forming a partnership. Starting a new business is a serious decision and should not be taken lightly. The decision of what business entity is formed for conducting business, asset protection, or estate planning will directly impact your liability and tax situation.
There are many options available in terms of business formation. The two most common types of business entities formed are LLCs or Limited Liability Companies, and Corporations.
In addition to determining how business taxes are paid, how a business is formed also determines the personal liability of its founders and other important aspects of the business’ operation. It is very important to choose the correct business entity and even more important to make sure that the entity is formed correctly and the owners understand their responsibilities to maintain the protections they are entitled to.
Business entity formation can seem intimidating and quite overwhelming; however, the process can be relatively straightforward if you have a clear understanding of how it works. This article will briefly discuss the process involved in forming a new business entity and when you would need a Business Formation Apostille.
1. Name Your Business
When naming your business, you must choose a name that is completely different from the name of any other registered business in your state. The guidelines as to how different your business’s name must be from others will vary from state to state.
It is important to do a bit of research when checking to see if your desired business name is available. Google is a helpful research tool, as is checking on social media for existing accounts; however, you should still conduct a thorough business database search on your Secretary of State website.
2. Select A Registered Agent
A registered agent basically acts as the liaison between a business and the state in which it’s registered. This third-party individual or business entity is responsible for acting as a point of contact on behalf of the business. Registered Agents receive important company documents such as tax forms, legal documents, government correspondences, and any notices of a lawsuit.
You can act as your own registered agent as long as you have a physical street address in the state in which your business is registered (P.O. boxes aren’t allowed); however, hiring a professional registered agent service does have its benefits. One such benefit is having more privacy and flexibility.
3. File the Articles of Incorporation / Certificate of Formation
The Articles of Incorporation which is sometimes referred to as the certification of formation or a charter, are a set of documents filed with a governing body to legally document the formation of a corporation. This important legal document consists of general information about the corporation including:
● The corporation's name and business address.
● The number of authorized shares and the par value (if any) of the shares.
● The name and address of the in-state registered agent.
● The names and addresses of its incorporators.
4. Create an Operating Agreement
Although Operating Agreements are not required in every state, it would be a wise business decision to have one. This legally binding document provides clear and detailed definitions of all ownership terms and guidelines or management decisions.
An operating agreement protects an owners’ personal assets while outlining ownership percentages, responsibilities, voting power, and any succession plan if an owner decides to relinquish their partnership in a business. An Operating Agreement will also prevent any miscommunication and resolve any conflicts that may arise among members.
5. Apply for an EIN and Review Tax Requirements
With your newly formed business, you'll need an EIN to open business bank accounts, apply for business licenses, and file your tax returns. An EIN or Employee Identification Number is the business equivalent of a personal Social Security number. EIN or Tax ID numbers are required if your company has multiple partners or employees. It is free and fairly easy to apply for an EIN on the IRS government website. If applied for online, you will instantly be issued an EIN.
If your newly formed business is going to conduct business in foreign countries, you will likely need a Business Formation Apostille. Foreign countries that are members of the 1961 Hague Convention require the use of Apostille certificates on official documents presented by companies planning on conducting business in their country.
The proper preparation of business Apostilles is quite complex and should only be done by a service provider who is experienced in the Apostille process. A Business Formation Apostille is a very important document. Incorrect processing can result in unnecessary delays as well as wasted time and money. American Apostille & Notary Services has the expertise to ensure all your important business documents are Apostilled correctly the first time.