10 Startup Filings Your Clients Should Know Aboutby
Clients who plan to start their own business need to file a variety of forms, obtain an Employer Identification Number and ensure they follow the government's strict guidelines for startups. Nellie Akalp explains exactly what's necessary and how accountants can help.
New entrepreneurs encounter uncharted territory as they navigate all they must do to create their legal business entities. I've no doubt that you've fielded many questions from your clients who aspire to become business owners.
Understanding the paperwork required to start a company is one of many things your clients have to tackle. In this article, I'll give an overview of various state and federal forms to give your clients a better understanding of the startup documentation they may have to complete. What I offer here is not financial, tax or legal advice—it’s purely for informational purposes. As accounting and tax professionals, you can use your expertise to guide your clients (to the extent your licensing and credentials will legally allow). Also, budding entrepreneurs should consider consulting an attorney for legal advice on what paperwork and filings apply to them.
1. Articles of Incorporation
Anyone who wants to incorporate their company (whether a C corporation or nonprofit) must complete this formation document and file it with the state’s secretary of state office (or a comparable government agency). Filing articles of incorporation registers a company as a corporation in the state, making it a separate legal and tax-paying entity from its owners (shareholders).
After a company receives the state's approval of its articles of incorporation, the business becomes "domiciled" in that jurisdiction. In other words, the state where the articles of incorporation application is filed becomes the entity’s home state. The business goes on record as a domestic corporation in the state, and it is obligated to operate according to that state’s laws and codes. The cost to file articles of incorporation varies by state.
2. Articles of Organization
Entrepreneurs who wish to form a limited liability company (LLC) must file articles of organization with the state where they want their company domiciled. The fee for filing articles of organization varies by state.
Upon approval from the secretary of state (or a comparable state agency), the business is in the state's records as a domestic LLC. As such, it must operate according to that state's laws and codes.
Forming an LLC establishes the business as a separate legal entity from its owners (members). By default, the company and its owners remain the same tax-paying entity.
3. Certificate of Authority
Clients who form their company in one state (their domicile) and also want to conduct business in another state must file paperwork to "foreign qualify" in the additional state. Some states call the documentation a "Certificate of Authority" application; others call it a "Statement and Designation by a Foreign Corporation." Regardless of the name, it's an essential filing for companies that want to expand their business activities beyond their home state.
4. Fictitious Name Registration (DBA or Certificate of Assumed Name)
Sole proprietorships and general partnerships that want to use and market their business under a name that does not include their legal personal name must file a fictitious name registration, also known as filing a DBA (“doing business as”). Likewise, if an LLC or corporation wants to use a name other than the one it registered with the state, it must file a DBA.
As a hypothetical example, let's say that someone named Tanya Morales wants to start an interior design consulting company. She wants to operate her business as a sole proprietorship but plans to market herself as "Innovative Interior Solutions." Because she is not disclosing her first and last name in that company name, she must file a DBA with the state to request permission to do business as “Innovative Interior Solutions.”
A DBA lets the public know the true owner of a business. DBA laws exist so that consumers have full transparency about whom they are transacting business with.
5. Trademark Application
When entrepreneurs register as either an LLC or corporation, their business name is protected against other LLCs and corporations using the same name in the state. However, if business owners want to protect their most valuable brand asset from being used by other companies in other areas of the U.S., they can file a trademark application with the United States Patent and Trademark Office (USPTO).
6. Initial Report
Some states require corporations and/or LLCs to file an Initial Report, also known as a "Statement of Information," soon after registering their companies. Due dates vary by state, with most requiring the reports within 90 days of registration. An initial report helps to ensure that the state has a company’s vital information on record (e.g., names of directors and officers of a corporation, registered agent name and address, etc.). Most states charge a small filing fee to businesses when they submit their report.
If a business fails to file its initial report on time, it could result in penalties and late fees— or even suspension or dissolution.
States that require initial reports include Alaska, California, Georgia (corporations only), Missouri (corporations only), Nevada (included in formation fees), New Mexico (corporations only) and Washington (included in formation fees).
7. IRS Form SS-4
I'm sure you've talked about this form with many a client. Regardless of entity type, any business that will hire employees needs an Employer Identification Number from the IRS. And any company operating (or being taxed as) as a corporation or partnership (including multi-member LLCs) must obtain one. Also, a single-member LLC that is a disregarded entity—even if it has no employees—will need an EIN if it’s required to file excise taxes. From a federal standpoint, a single-member LLC without employees won’t need an EIN if it isn’t required to pay excise taxes. However, it may need an EIN to open a bank account or comply with state tax law.
Fortunately, Form SS-4 to apply for an EIN is straightforward, and the IRS processes online requests nearly immediately. One thing to make sure your clients understand is that there are eligibility requirements for getting an EIN. For example, the principal business must be located in the United States or U.S. territories. Also, the person applying online must have a valid Taxpayer Identification Number (i.e., SSN, ITIN, EIN).
8. IRS Form 8832
IRS Form 8832 (Entity Classification Election) is the form an eligible business entity (LLC or partnership) uses to elect federal income tax treatment other than its default treatment. For example, if an LLC or partnership (including multi-member LLCs) wants to be taxed as a C corporation, Form 8832 must be completed and submitted to the IRS. Also, if a business owner wants to change their company's tax election down the road, they would use Form 8832 to do so.
9. IRS Form 2553
Business owners that want their LLC or C corporation taxed as an S corporation must file this form (“Election by a Small Business Corporation”) with the IRS. After the state has approved articles of organization or articles of incorporation, the business can submit Form 2553.
Note that not every LLC or C corp qualifies for S corp tax treatment. For example, the business may not have more than 100 shareholders or members.
10. Federal, State and Local Licenses and Permits
Many businesses must have some form of business license or permit to conduct their commercial activities. Requirements, fees and the application process vary by state, county and municipality. Depending on the industry (such as agriculture, aviation, firearms, broadcasting and transportation), a business might need a federal license.
How Can You Help Your Clients With Their Startup Needs?
Your professional expertise will help your clients navigate the unknowns of tax-related matters. Also, encourage them to seek a licensed law professional to cover all the bases regarding legal issues related to starting a business.
Also, if clients don’t feel comfortable with (or don’t have time for) completing forms and applications on their own, you can suggest that they enlist the help of a company that specializes in online business filings. You might even consider partnering with an online filing company to help your clients with their forms. Some offer partner programs that give accounting and tax professionals opportunities to earn revenue through referring customers to them or reselling their services.
Launching a business will be one of the most exciting — and challenging — endeavors your clients can undertake. By giving them the best of your specialized knowledge and guiding them to the right resources, you can establish the trust and confidence to secure a long-term relationship that benefits their business and yours!