Thinking of starting a business? First of all, congratulations! As Business Attorneys, we know firsthand that while the idea of opening up your own shop is exciting, the steps necessary to make that dream a reality can be quite daunting. While you might not be sure what to do first (and then next), these are important steps necessary to ensure your business is set up correctly and starts on the right foot.
We’re here to demystify the process and provide you information on those first critical steps in setting up your new business.
4 Steps to Get Your Business Up and Running
1 – Choose an Entity Structure
Texas offers several different entity structures for your business. Your decision regarding what entity structure is best for you depends on many factors, including consideration of issues related to taxes, owner liability, management and operation, and transferability of ownership interests. Common entity structures include sole proprietorships, partnerships, limited liability companies, and corporations. The entity structure you choose will have significant effects on your business and you as an owner, so it’s important to consult with trusted advisors, including your attorney and accountant, about the type of structure that will best fit your needs and the needs of your business.
2 – Name and Register Your New Business
Once you have decided how your business will be structured, it’s time to let the government know who you are, but first–you have to choose a name! For LLCs and corporations, it’s important that you check your name is distinguishable from the names of other business entities already on file with the Texas Secretary of State (SOS), so that any future confusion regarding who-did-what is avoided.
Once you have chosen your business’s name, you will need to file the required paperwork (depending on what entity structure you choose) with the SOS. You can also file an Assumed Name Certificate if you intend to operate under something other than your entity’s legal name.
3 – Obtain an Employer Identification Number (EIN) and Required Licenses
Whether you have employees or not, unless you are a Sole Proprietor, you’ll want to obtain an EIN from the Internal Revenue Service. Your entity’s EIN is its Tax ID, and even if you are not required to obtain your own EIN, there are many business reasons to do so, including establishing a boundary between yourself personally and the entity. In addition, some banks and other institutions might require your business to have its own Tax ID. You can apply for your EIN on the IRS’s website, or have your attorney or accountant obtain it for you.
Depending on what type of business you are opening, you might also be required to obtain a license or permit. While the State of Texas doesn’t require a General Business License, many industries (think medical and legal, for example) require licenses to operate. In addition, your local county or municipality might have permit or licensing requirements of their own. It’s important to understand licensing and permit requirements before you start operating your business.
4 – Get Your Company’s Governing Documents in Place
While many new business owners are able to make it through the first three steps above on their own, most stop short of implementing important governance documents at the onset, such as an operating agreement. No matter what type of entity you are forming, your operating agreement provides critical information regarding the structure and control of your business. For example, your operating agreement will establish clear terms and conditions for decision-making by company management, and address what will happen to your business in the case of an owner’s death or divorce. We frequently have clients approach us who have found themselves in a bind because they did not put governing documents in place when they first established their business, and in the face of a disagreement or dispute, they aren’t sure how to proceed. You can avoid this uncertainty by deciding up-front how you want such situations to be handled.
If you have questions about the steps above, or are in need of an attorney to help guide you through this process, contact us today.
