Are you aspiring to elevate your business to the next level? Are you expanding your products and services, bringing in new partners, entering into new markets, or adding employees? You might want to complete some important business filings before you take those next steps. Depending on your circumstances and growth strategy, some filings may be optional, while others could be legally required. In this article, I’ll identify some filings commonly associated with growing a business.
Incorporation
As businesses grow, often so do their liability risks. So, if you’re operating a Sole Proprietorship or Partnership, you may want to consider forming a Limited Liability Company (LLC) or a C Corporation. LLCs and C Corporations are separate legal entities from their owners. Therefore, they help protect business owners’ personal assets from the debts of their company.
Also, the LLC and C Corporation business structures provide tax flexibility (such as S Corporation election) not afforded to Sole Proprietorships and Partnerships, which might help lower a business owner’s tax obligations.
LLCs must be registered with the state by filing a document called Articles of Organization (some states refer to it as a Certificate of Organization or by some other name). C Corporations and Nonprofit Corporations must be registered with the state by filing a document called Articles of Incorporation (alternatively referred to as Certificate of Incorporation or Corporate Charter in some states.)
EIN Application
Any company that hires employees or that registers as an LLC, Corporation, or other type of legal business entity must apply for a federal tax identification number called an Employer Identification Number (EIN). An EIN is a unique 9-digit identification number used for tax and other ID purposes. Often, banks will require an EIN before opening a business bank account for an LLC or Corporation, and a company may need an EIN when applying for licenses and permits. To request an EIN from the IRS, business owners must submit Form SS-4 (Application for Employer Identification Number).
S Corporation Election
Eligible LLCs and C Corporations may elect to be treated as an S Corporation for federal tax purposes. In the case of an LLC, S Corporation election may help lower business owners’ Social Security and Medicare tax burden, as only their wages and salaries are subject to those taxes (as opposed to all business profits subject to those taxes when an LLC is taxed by default as a Sole Proprietorship or Partnership). Shareholders of a C Corporation may find S Corporation election attractive because it allows taxation as a pass-through entity, thus avoiding the double taxation of some profits. With the default C Corporation tax treatment, the Corporation must pay tax on its profits at the corporate tax rate, and then shareholders pay tax again (at the individual tax rate) on profits distributed to them as dividends.
Filing for S Corporation election involves submitting Form 2553 (Election by a Small Business Corporation) to the IRS. Note that companies must meet certain eligibility requirements, including having no more than 100 shareholders.
Doing Business As (DBA)
Regardless of your business structure, if you intend to market products or services under a company name that’s different from your legal business name, it requires filing a Doing Business As (DBA) (a.k.a. fictitious business name, assumed business name, or trade name). Filing a DBA can help a company expand its lines of business without having to create an entirely new business entity. For example, if the owner of “Smith’s Automotive Repair, LLC” wants to refurbish antique cars, they may decide to file a DBA for the fictitious name “Extraordinary Vintage Vehicle Restorations” for that line of business.
Typically, DBAs are issued at the state level, but in some cases, the county may issue them. Either way, a DBA application might be rejected if the requested name is confusingly similar to the name of another business operating in the same locale or if another company has protected the name with a registered trademark. Doing a business name search and trademark search can help identify if a name is already in use.
Articles of Amendment
Depending on how much an LLC or Corporation has evolved, it may need to file Articles of Amendment with the state. States want to know if an LLC or Corporation has made significant changes, such as its name, address, business activities, directors or members, or the number of authorized shares. A business could face penalties if it fails to notify the state of these types of changes.
Foreign Qualification
Expanding an LLC’s or Corporation’s operations beyond its home state requires filing for foreign qualification. When a company is foreign-qualified in another state, it has the legal authority to conduct business there.
States’ rules vary for when foreign qualification is required. Generally, a business entity must foreign qualify if one of the following descriptions apply:
- Has a physical presence (office, store, or warehouse) in the state
- Has an employee in the state
- Has an economic nexus (reached a certain revenue or sales threshold) in the state
Once foreign-qualified, a business must fulfill all of the compliance requirements (licensing, annual reports, tax filings, etc.) of that state in addition to those in its home state. Among other things, a company must designate a registered agent in any state where it has foreign qualifications.
State Payroll Registration
Having capable employees is a critical ingredient for successfully growing a company. Naturally, employees must be compensated—and that involves setting up payroll and managing employment-related taxes and deductions properly. In addition to reporting employees’ pay and making withholdings (e.g., federal income tax and FICA) or payments (FUTA, federal unemployment) to the federal government, a company must also register for payroll tax accounts with the proper state and local government agencies.
Examples of state and local payroll deductions and other employment-related fees include:
- State income tax
- Local income tax
- State unemployment insurance
- Court-ordered wage garnishments (e.g., child support, alimony, back tax payments, etc.)
State and local government payroll laws vary, so it’s important to talk with legal and accounting experts to determine the rules you need to follow and get a system in place for managing withholdings and payments accurately and on time.
Business Licenses and Permits
If setting up a new location or expanding its products and services, a company may need to obtain business licenses and permits at the state, local, or even federal level to legally operate in the locale and conduct its business activities.
For example, a company might need:
- A sign permit to post its name and logo prominently outside of its building.
- A fire alarm permit to verify it has the necessary alarm system in place.
- A business license specific to its services or products: e.g., bakery license, contractor’s license, real estate license, etc.
Requirements vary from state to state and municipality, so it’s critical that entrepreneurs research which licenses and permits they’re obligated to secure before doing business.
