Just Starting Out

[coffee-bean]

I want to have checks payable to a name that I want my business to be. I also was thinking maybe I should try to make my business an LLC? I'm pretty sure I'm not what they call an "entity" yet. I haven't made a sale yet and I haven't done any paper work. I basically made a web application and I want to market to a target audience. So what kind of things should I do to make my business? Some guy at the bank said I needed an assumed name affadavit. What all do I need to know?

[Owen]

Well, first you need to start off with the most important part of a business. A BUSINESS PLAN. You can download a template from online and just write down everything there is needed to know about your business including concept, goals, entity, financial plans, etc.

Next you're going to want to hire an accountant. You can then go over this business plan and he/she can help decide on the entity.

Now, the third step to starting your registered company is to raise capitol whether it's through your own personal money, bank loan, or investors. Once you have enough capitol you should begin the registration process. HOWEVER, IF YOU'RE LOOKING FOR ACTUAL INVESTORS USE PERSONAL MONEY OR A BANK LOAN AND THEN GO TO THE NEXT STEP.

Once you've got that all set, file for an LLC, S-Corp, DBA, C-Corp, or LP. I'm also going to go over the entities and their differences.

Limited Liability Company: A limited liability company, or LLC for short, is an entity with ownership based on members of the LLC. If you're working alone, you'd be the majority owner, initially owning 100% of the company, and the only member of the LLC. LLC's DO NOT have federal income taxes. They are NOT a separately taxed entity, so instead taxes will be filed on your personal tax return. An LLC is great for small businesses. LLC's also do not have stock, and in order to be publicly traded (if your company manages to get big enough to go public) you'd have to become a C-Corporation.

S-Corporation: S-Corps are the next step up from an LLC. The S-Corp is a lower level version of the C-Corp. An S-Corporation has double taxation like a C-Corp. That means you will have federal and state tax. Also, to have ownership you have shareholders where you buy stock. However, there is a limit of 100 shareholders in a S-corporation.

C-Corporation: C-Corps are what the big guys use. Companies like Google, Microsoft, Apple, Samsung, etc. are all C-Corporations. They have unlimited amount of shareholders, double taxation, and they are a completely separate tax entity like the S-corporation. They can have stock as well, but most of the time you'd be filed with NASDAQ or NYSE if you go public. They are best for big companies.

DBA: A DBA is a sole proprietor where you have no limited liability unlike all of the entities above. The DBA is your name like "Your Company" and has no asset protection at all.

That's about it. Next you'd meet with lawyers and discuss everything else with starting your company. Hope that helped :-)

[coffee-bean]

Thanks for your help. I'll get started with the business plan.

[turboguy]

Owen, that was a great post and a fantastic overview of the business types and advantages. There was one error however. An S corp does not have double taxation like a C Corp. With a C corp you pay corporate taxes and then again pay income taxes on the same money when the salaries are paid to the officers, shareholders and employees. With an S Corp there are no corporate taxes and the income is paid by the shareholders. It is a pass through like an LLC.

Coffee-bean, It sounds to me like you are in a getting your feet wet and not quite ready to jump into the pool stage. Getting a lawyer and accountant might be a bit more of an investment than you want to make right now so I will talk a bit about a DBA

The requirements for a DBA may vary by state. Here you can go on your state government web site and download the forms to set up a DBA. A DBA is also what they call a fictitious name. Basically you decide what you want to call your business. As long as no one is using that name then you can register that name with the state. There is a small fee and you will likely have to run two classified ads in newspapers saying you are using that name. Let's say for example that you want to call your business. Coffee Beans International and your name is John Doe. Legally your business would be John Doe, DBA Coffee Beans International (DBA stands for Doing business as ) but you could open a checking account and get letterheads that just said Coffee Beans International. From a tax standpoint the taxes stay pretty simple. You just file a schedule C along with your 1040.

You can always change later to an LLC or S or C corp. When you can and are committed to your project it is always good to talk to a lawyer and accountant.

[coffee-bean]

This is really helpful. I'm going to talk to my dad about whether to become an LLC or DBA. My first concern is how much it will cost me to be either one. I am considering just proceeding as just myself making money (without formally owning a business) until I get the money to become an LLC. Maybe that's what being a DBA is. One thing I wanted was to have checks payable to a business name (even though I don't formally have a business). Is that possible?

[turboguy]

If you file the forms yourself neither the LLC or a DBA is going to be very expensive. Without knowing where you are my guess is under a hundred for the DBA and under $ 250 for the LLC. If you have a lawyer do it I would guess you are looking at $ 500 and $ 1000.00. There are also online services that will guide you through it inexpensively but they really don't do much you could not do yourself.

Is it possible to have checks in your business name even though you don't have a business. I would be quite surprised if the bank would let you do that. You will most likely have to give them a copy of your DBA filing or your LLC paperwork. A long time ago you could do that but I am guessing the banks are getting tougher. My first business was a DBA but I never filed paperwork to make it legal and was able to open a checking account. Of course that was before you were born. I believe about 30 years after I opened the business I did do the DBA thing.

[coffee-bean]

Alright, well I wish I could have a separate name, but in the mean time I'll just use my own name for checks payable. Thanks for your input. I think I'll try to be an LLC unless I learn more about why it would be better to file DBA.