6 Critical Steps to Forming a Business Entity

Starting a business can be a daunting task, especially when it comes to legal matters. Choosing the right entity, registering it, and carrying out all other legal formalities is a mammoth task. The benefits of forming a business entity include gaining legal protection, reducing liabilities, and getting tax benefits. To help with this task, here are 6 steps to guide you through the process of forming a business entity.

Step 1: Select a Business Entity Name

The first step to forming a business entity is selecting a name. Your business entity name should be unique and should not violate anyone else’s trademark. Before deciding on a name, ensure that you have researched it, and it is not already in use. Once you have decided on a name, register it with the state and obtain a trademark if necessary.

Step 2: Pick a Legal Structure

Selecting the legal structure is the most crucial step while forming a business entity. It determines how the business will be taxed, who can make decisions, and the liability protection you’ll receive. The most common types of legal business structures are sole proprietorship, partnership, LLC, and corporations. Not sure which structure will suit your needs? Contact a professional accountant to help you determine which structure would suit your business best.

Step 3: Select a Location

After selecting a name and legal structure, you need to select a location for your business entity. Factors to consider include rental costs, proximity to customers, accessibility, and other location-related expenses. You may also need to apply for a local business license if your business is located in a specific city or county.

Step 4: File Necessary Paperwork

To register your business entity, you need to file necessary paperwork with the state government. The documents may vary depending on the type of legal structure you have chosen. Some of the essential documents you may have to submit are the Articles of Formation, a business plan, a tax identification number, operating agreements, partnership agreements, and any other necessary permits and licenses required by the local state government. 

Step 5: Set Up Financing and Taxes

Financing and taxes are important aspects of running a business entity. You need to set up a separate business bank account for your new entity to manage your finances. Also, ensure that you register for taxes with the state and federal government. Depending on the legal structure you have chosen, you may have to pay self-employment taxes, federal income taxes, or sales taxes. Hiring a professional accounting and tax service can help ensure that all your financing and tax requirements are complete.

Step 6: Hire Employees

In the final step, you need to hire employees for your newly-formed business entity. Hire the most qualified candidates after conducting interviews and background checks. Set up a payroll system and register for employer tax obligations with the state and federal government. An Employer Identification Number can be obtained for free through the IRS. The number is used to identify your business and will be used on various employee documents.

Forming a business entity is a complicated process but is essential for success. By following these six simple steps, you can form a business entity that is legally compliant and can reap the benefits of tax advantages, liability protection, and more. Remember to do thorough research, consult a professional, and take time to ensure that you’re filing all necessary paperwork correctly. With the right legal entity and legal protection, starting your own business can be an exhilarating and fruitful journey.

Choose South Shore Accounting and Tax Services

South Shore Accounting and Tax Services can assist you with all your accounting needs including forming a business entity. With over 30 years of experience in the accounting and tax fields, we help homeowners and business owners alike. We help our clients achieve their financial goals and keep their finances healthy.  Request a free consultation or call 781-924-3141 to set up an appointment today!