After a business is up and running, it’s critical to maintain it by fulfilling all of the required business compliance tasks on time. Of course, businesses grow and evolve over time, and therefore, the actions they must take to maintain a business entity also may change. Fortunately, CorpNet is here to help you learn how to manage your business effectively every step of the way.
What are some of the business considerations entrepreneurs should keep in mind? Below, I’ve listed several situations where changes in a business will involve business compliance filings.
1. Hiring employees
Obtain a Federal Tax Identification Number
Owners of a Sole Proprietorship or Partnership are not considered employees of their company, but when they hire other people to work in the business, they will need to obtain an EIN (Employee Identification Number) and register for payroll taxes.
An EIN is a federal tax ID number that the IRS issues (for free) and uses to identify a business entity. While owners of Sole Proprietors and Partnerships without employees may use their social security numbers as their tax ID numbers, the IRS requires EINs when businesses hire employees. A business may need an EIN even before hiring employees if its bank requires it when opening a business bank account.
Corporations and Limited Liability Companies (except single-member LLCs under some circumstances) must obtain an EIN.
IRS Form SS-4 (used for requesting an EIN) is not complicated. However, CorpNet can save you time by preparing your EIN application and submitting it to the IRS.
Register and Pay Payroll Taxes
Another critical step that businesses hiring employees must take is to register for payroll taxes. In the United States, tracking, reporting, and paying payroll taxes are required legally to hire and pay employees. Some taxes must be withheld from employees’ paychecks, and the employer must pay some. Businesses must register for the appropriate payroll tax accounts at the state and federal levels (and sometimes the local level if there is a local withholding tax) to process employee payroll and file returns.
The rules and requirements vary by state, but generally, payroll taxes might include:
- Federal income tax
- State income tax (SIT)
- Federal Unemployment Insurance Act (FUTA) Tax – paid by the employer; not withheld from employees’ paychecks
- State Unemployment Insurance Tax (SUI) – generally paid by the employer and not withheld from employees’ paychecks
- Social Security Tax
- Medicare Tax
- Local Income Tax
As you can imagine, it can get a bit confusing and time-consuming to research a state’s requirements, complete the paperwork, and deal with the state’s tax administration office. With CorpNet’s help in setting up your state income tax account (anywhere in the U.S.), you can stay focused on other business to-dos.
Read More About Payroll: What is Payroll?
2. Limit Personal Liability
Sole Proprietorships and General Partnerships are considered the same legal and tax-paying entities as their owners. So, there is no separation legally between the owners’ and the business’s debts and legal obligations. This can put entrepreneurs’ personal assets—such as their homes, vehicles, savings and retirement accounts, and more—at risk of being taken when the business cannot pay its bills or faces a lawsuit.
Entrepreneurs can limit their personal liability for their business’s debts by forming an LLC or incorporating their company. LLCs and Corporations are separate legal entities from their owners, and therefore can offer peace of mind in the event of unfortunate circumstances. Under most circumstances, owners’ personal property and other assets are protected from being used to settle the business’s legal issues. When deciding which business entity type will be most advantageous, it’s essential to discuss the options with legal and accounting professionals.
LLCs and Corporations are created by submitting business registration paperwork with the state. The forms and additional requirements vary from state to state, and that can become confusing. If you’ve decided to form an LLC or incorporate, CorpNet can assist you through the process by preparing and filing your registration forms with your state.
3. Expanding into Additional States
File for Foreign Qualification
When an LLC or Corporation wants to expand its operations into states beyond its state of domicile (i.e., its home state), it must go through a process called Foreign Qualification. In other words, the company must qualify to conduct business in the other state(s). Usually, this involves filing a Certificate of Authority (sometimes called a Statement and Designation by a Foreign Corporation) with the Secretary of State office in the additional state(s). Foreign Qualification, where allowed, saves business owners from the more extensive process of creating a new business entity in the state(s) where they want to expand. If you are interested in foreign qualifying your Corporation or LLC, CorpNet can help by saving you time and money by handling the process for you.
Maintain a Registered Agent
In any state where an LLC or Corporation is registered or foreign qualified, the company must designate a registered agent in that jurisdiction. A registered agent is an individual or entity with a physical address in the state that is authorized to accept service of process (important state correspondence and legal documents) on behalf of the business. It can be helpful for companies to use a registered agent that is authorized to provide services in all 50 states. By doing so, they don’t have to scramble to find a reliable registered agent when entering a new state.
Business Licenses and Sales Tax Registration
If a company expands operations into additional states, it will have to fulfill the license and permit requirements enforced by the state and local government. This will include registering for a sales tax license if the company sells taxable products or services within the state. With varying requirements from one state to another, it can be challenging to identify exactly what a business must obtain to operate legally. Of course, speaking with the state and local agencies and consulting a business attorney for guidance is extremely helpful. CorpNet streamlines the process of determining what businesses must comply with anywhere in the U.S. through our Business License Compliance Package.
4. Starting a New Line of Business
Fictitious Name Registration
Suppose an existing company is introducing a new business line or wants to market its services or products under a name other than its legal name. It can do so by filing a DBA. DBA stands for “Doing Business As,” and you might also hear it referred to as “fictitious name,” “trade name,” or “assumed name.”
Sole Proprietorships and Partnerships file DBAs when they want to market their businesses under a different name than their owners’ legal names. LLCs and Corporations file DBAs when they want to operate different businesses under the same legal entity.
Often, filing a DBA involves completing paperwork and paying a fee to the state government. However, in some areas, the county has authority over fictitious name registrations. Regardless, it’s wise to do a business name search and trademark search before completing the forms to ensure no other business has already claimed the same (or a similar) name. States might reject a DBA for being identical or similar to another DBA or business entity name in its jurisdiction if it confuses customers. Moreover, if another business has trademarked the name anywhere in the U.S., the DBA might be rejected depending on how alike the name and products and services are. Application fees are not refundable, so it’s smart to know if the odds of approval are in your favor from the start.
Business Name Rights
When a business forms an LLC or Corporation in a state, its business name automatically receives protection within that state. Generally, no other companies that register as an LLC or Corporation will be able to use the name for operating a similar business. However, it’s important to note that business registration as an LLC or Corporation will not prevent others from filing a DBA to use the name in the state (or even down the street!). Applying to have the name approved as a registered trademark with the United States Patent and Trademark Office (USPTO) is the only way to protect it legally from being used by any business entity in the state and all other states, too. When the USPTO grants a registered trademark for a business name, the owner has exclusive rights to use it—at the state and federal levels. No other businesses may sell similar goods and services under that business name in any of the 50 states.
Before applying for a federal trademark, I recommend using the USPTO’s Trademark Electronic Search System (TESS) to look for any registered trademarks and pending applications that use the business name or one that is similar. For legal advice about whether a name might conflict with an existing or pending trademark, entrepreneurs should seek an attorney’s expertise. CorpNet offers services to prepare and submit LLC formation and incorporation filings to help you protect your rights to your name in your state and beyond.
5. Optimizing an LLC or Corporation’s Tax
Eligible LLCs and Corporations might consider changing how their income taxes are treated by electing to be taxed as S Corporations.
By default, an LLC is taxed as a Sole Proprietorship or Partnership, with all profits and losses flowing through to owners’ personal tax returns. Owners pay income tax on business profits and pay self-employment taxes (12.4 percent Social Security tax and 2.9 percent Medicare tax) on that income. A C Corporation, by default, reports and pays corporate taxes on its profits while its shareholders pay tax on their wages or salaries and dividend income they receive from the business. A potential disadvantage of C Corp default tax treatment is “double taxation,” which refers to how income is given to shareholders as profit distributions get taxed at both the corporate and individual taxpayer levels.
Owners of LLCs and Corporations may find that electing S Corporation tax treatment will result in more favorable financial outcomes. When a business meets the IRS’s eligibility requirements, it can choose to be taxed as an S Corp by filing IRS Form 2553.
The IRS’s criteria for qualifying a business for S Corp Status include:
- Filed as a U.S. domestic corporation
- Maintain only one class of stock
- No more than 100 shareholders
- Allowable shareholders of an S Corp include individuals, certain trusts, and estates. Not allowed are partnerships, corporations, or non-resident alien shareholders.
- Not be an ineligible corporation (e.g., insurance companies, certain financial institutions, and domestic international sales corporations)
Potential tax advantages of S Corporation election:
- LLC – Lowers the self-employment tax burden because only wages and salaries paid to the business owner are subject to Social Security and Medicare taxes.
- Corporation – Taxes are handled on a pass-through basis to shareholders’ personal tax returns. The corporate entity does not pay corporate income tax, eliminating the “double taxation” that occurs with C Corporation tax treatment.
The forms to request an S Corporation election are straightforward. However, to save time and ensure they’ve submitted accurately, you can rely on CorpNet to handle the S Corp election for you.
Compliance Tasks by Entity Type
Now that I’ve shared information about maintaining a business as it evolves, grows, and changes, I’d also like to highlight some of the startup and ongoing compliance requirements by business structure. Keep in mind that rules vary by state, and in some instances, by the industry or nature of the products or services. There may be more or fewer requirements. It’s critical to check with the appropriate federal, state, and local agencies to learn how to manage a new business and understand your business’s ongoing obligations.
Maintaining a Sole Proprietorship
- Applying for and renewing business licenses and permits
- Registering for, withholding, reporting, and remitting payroll taxes (if hiring employees)
- Filing and renewing DBAs (if using a fictitious business name)
- Reporting and paying applicable taxes
Maintaining a General Partnership
- Applying for and renewing business licenses and permits
- Payroll registration, withholdings, and remittance (if hiring employees)
- Filing and renewing DBAs (if using a fictitious business name)
- Reporting and paying applicable taxes
Maintaining an LLC
- Filing Articles of Organization with the Secretary of State
- Designating and maintaining a registered agent
- Keeping an LLC Operating Agreement at the principal place of business
- Filing an annual report
- Holding an annual meeting and recording minutes of meetings
- Applying for and renewing business licenses and permits
- Registering for, withholding, reporting, and remitting payroll taxes (if hiring employees)
- Reporting and paying applicable taxes
- Filing Articles of Amendment to notify the state of any significant changes to the business entity
Maintaining a Corporation
- Filing Articles of Incorporation with the Secretary of State
- Designating and maintaining a registered agent
- Appointing and maintaining a board of directors
- Maintaining corporate bylaws and a shareholder agreement
- Filing an annual report
- Holding annual shareholder meetings and recording minutes
- Holding board of director meetings and recording minutes
- Applying for and renewing business licenses and permits
- Registering for, withholding, reporting, and remitting payroll taxes
- Reporting and paying applicable taxes
- Filing Articles of Amendment to notify the state of any significant changes to the business entity
Get Peace of Mind That You’re Maintaining Your Business Correctly
Whether you’re just starting your business or making changes to take it to the next level, you can rely on CorpNet’s team to help with your business formation and compliance filings in any state.
- Register your business
- Obtain a Federal Tax ID Number
- File a DBA (fictitious name)
- Designate us as your registered agent
- Apply for business licenses and permits
- Register for payroll taxes
- Foreign qualify your business to operate in other states
- Request S Corp election
- File your Annual Report
- Submit Articles of Amendment
Reach out to us today and discover how we can simplify your life and save you time and money!
