If you have a product or service that you are ready to put in the hands of consumers, you may be ready to take the step and start your own business. The process of starting a business involves more than just an idea, however. To start a business you will need to plan, make financial decisions, file legal documents, understand compliance, create plans for the future, and understand dissolution.
Let’s take a closer look at these elements and what they mean for you.
Planning is a part of starting a business that is relevant throughout the entire process. As you plan and form your business, you will create a business plan that will serve as a guidebook for how your business will be set up, operated, and maintained. The planning process really never stops.
There are many financial decisions to be made when starting a business. You may need to secure funding from a lender or bank, hire an accountant, budget zoning or certifications, or apply for grants. You also will be required to register your business for local and state taxes, which should also be factored into your overall financial picture. If you are manufacturing a product, you should consider supplies and inventory. If you need to hire employees, you will also have to determine pay scale and tax information.
In order to form a business, you must determine the legal structure that works best for you. There are several forms of business entity that you can choose from, which will affect your tax obligations and how your business is operated and maintained. These entities include:
• Sole Proprietorship
• Limited Liability Company (LLC)
• S Corporation
Depending on which structure you choose, your business will have different requirements for taxes, certifications, compliance, and dissolution.
Every business is required to maintain certain requirements, known as compliance. Depending on which business structure you choose, your compliance requirements will vary. In general, there are two forms of compliance you should consider: internal and external.
• Internal Compliance – Requirements that must be maintained within the business by the owner, operator, shareholders, director, members, or managers. Internal compliance is important, and records of such compliance should be maintained, as they may be relevant if the business is ever sold or sued.
• External Compliance – Requirements that must be maintained in accordance to state or local business laws and regulations. Some examples of external compliance requirements include:
o Franchise tax
o Annual reports
o State taxes
o Initial reports (requirement varies by state)
Businesses that do not meet compliance standards may be subject to consequences including losing “good standing” with the state, fees and interest accrual, lawsuits, or administrative dissolution.
Planning for the Future
Planning for the future is another important element of starting a business. Every day, businesses are reformed, sold, or structures changed. Do you have a plan for how your business will manage such changes? Planning for such an event is often called a contingency plan, and may be included as part of your business plan. A contingency plan may include plans of action for a variety of possible scenarios, including:
• Crisis Management – Includes a plan for managing natural disasters, fire, crime, on-the-job injuries, etc.
• Business Continuity – Includes a plan for how your business will be operated and managed in the event of your death or incapacitation, unexpected financial troubles, or other events that may be extended. These plans often include insurance policies providing coverage or funding to keep the business running.
• Mismanagement – Mismanagement may include theft, fraud, personal scandal, or operational errors that threaten your business. Making a plan to handle these scenarios can help prevent a ruined reputation and professional image. Mismanagement plans often include careful attention to legal and insurance considerations.
• Reorganization – Reorganization is a fairly common business practice as structures change and unexpected events arise. A reorganization plan will establish how your business will reorganize, limit future contingencies, and continue normal operations. Reorganization may be necessary in response to a contingent situation, or in response to rapid changes in demand or number of orders.
Whether you are simply ready to move on, or are being forced to close your business due to unexpected events, dissolving a business requires a process quite similar to business formation. To dissolve a business, you must follow guidelines as established in your state, and by the structure your business was formed under. Some of the basic processes you will be required to do include:
• Dissolve the business according to the “Rules of Dissolution” in your business plan, articles of incorporation, partnership agreement, and/or state laws.
• File a Certificate of Dissolution with your state and resolve any outstanding issues, such as taxes, creditors, or suppliers.
• Notify local and state tax agencies and the Internal Revenue Service (IRS) that you are dissolving your business.
• Cancel any business licenses you may have.
• Notify any creditors associated with the business and settle claims.
• Inform any stakeholders of your intent to dissolve the business.
If you have questions about starting a business, compliance, dissolution, or settling disputes, contact Daic Law to get the help you need. You can email Daic Law at email@example.com, or call our office at (713) 808-5246.