Attention To the Details
During the hectic weeks of launching a new business, forgetting to tackle a key job or two is not unusual with disastrous results. To avoid repercussions later, take time now to go over the final details.
Three areas in particular warrant your full attention:
- Legal tasks, including company name, registration and licensing
- Corporate structure
- Mission statement
Names, Licenses and More
If you haven’t already done so, review and complete the chores that will cement your new company’s legal framework. Some of these steps are easier than others, but all of them are critical:
- Name your company. The government distinguishes between a business’s legal and fictitious names. If you are your firm’s sole owner, your legal company name is your full name; in partnerships, the legal name is either the one cited in your partnership contract or the partners’ last names. For limited liability corporations (LLCs) and corporations, the legal name is the one you registered with your state government.
While official forms and applications require a firm’s legal name, you also may file a trade or fictitious name with your state’s appropriate agency. Sometimes called a DBA (doing business as) name, this tag should embody the unique aspects of the business.
For instance, the name “Flowers Your Way” tells prospective customers they can order floral arrangements designed to their specifications. “Round-the-Clock Car Repairs” promises to fix automobiles any time of the day or night. Before finalizing a name, make sure no other business exists with that name. The Secretary of State’s offices for most states provide this information on their respective Web sites.
- Register your company’s name. This can be done online via individual Secretaries of State Web sites. Links for all 50 states, as well as U.S. territories, are available on the Small Business Administration site (www.sba.gov/content/register-your-fictitious-or-doing-business-dba-name).
To trademark a name or logo on a national level, visit the U.S. Patent and Trademark Office (www.uspto.gov/main/trademarks.htm), which offers a detailed breakdown of policies and procedures.
- Obtain appropriate business permits and licenses. Depending on the type of venture, various licenses may be in order, with regulations varying from state to state. The U.S. Small Business Administration provides updated links to individual state licensing agencies at www.sba.gov/content/search-business-licenses-and-permits.
- Procure a state resale tax number (also known as a sales tax number or resale certificate), if applicable. In most cases, retail businesses need this in order to purchase inventory and supplies at wholesale prices. The Internal Revenue Service provides links to individual state Web sites, including their departments of revenue and business and economic resources (www.irs.gov/businesses/small/article/0,,id=99021,00.html).
- Open a separate business account.Never mix personal and corporate bank accounts, no matter how small your company. Not only does the IRS require this distinction, keeping clear track of business income and expenses demands this separation from a practical perspective. A mish-mash of family and commercial transactions makes accurate bookkeeping in either category well-nigh impossible.
Given that you’ll probably require future financial services, such as loans and credit card merchant accounts, opening a business account in a strong bank or other financial institution is a good way to start a relationship with prospective lenders. Besides banks, many credit unions also offer business accounts, usually at cheaper rates than their commercial bank cousins. Moreover, some do not require membership simply residency in the state where the union holds its charter.
- Enlist an advisory team. With the establishment of a business comes the need for all sorts of insurance coverage, financial advice and legal support. In addition to taking advantage of free expertise through the SBA (www.sba.gov), SCORE (www.score.org) or a Small Business Development Center, it’s critical for a company’s sustainability to recruit a good accountant, attorney and insurance agent at least on a consulting basis.
Corporate Structure: More Choices
Even solo operations require a legal structure, not simply for tax-filing purposes, but also to take advantage of tax deductions, insurance breaks and revenue distribution (e.g. salaries, dividends). Here is a rundown of the models currently in use in the commercial sector:
- Sole Proprietorship. A basic, inexpensive structure, this type of company typically belongs to a single person or married couple. Because the owner runs the operation, he or she assumes personal liability for all debts and may transfer the business in part or in its entirety. The owner reports profits and losses on personal income tax returns.
- Limited Liability Company (LLC).Particularly beneficial for smaller businesses, this structure blends the corporation’s limited personal liability with the tax advantages of a partnership and sole proprietorship. As such, an LLC can opt for taxation, as would a corporation, or pass gains and losses through the firm to its members (owners included). LLCs do not own stock, so corporate formalities are unnecessary.
- General Partnership.Though joint undertakings often require tact and restraint on the part of owners, this model does have advantages. Partnerships are cheap and easy to form, requiring nothing more than an agreement between a minimum of two individuals or entities to jointly own and run a company. Partners share gains, losses and administrative chores, with each owner assuming personal liability for debts. While partnerships per se do not pay taxes and file only an informational return, individual owners report their profit-loss share on their personal income tax returns.
- C Corporation (Inc. or Ltd.). A model involving a good bit of complexity, C corporations are relatively expensive to launch, include corporate formalities and may be subject to higher licensing fees and regulatory oversight than other structures. For these reasons alone, an attorney should be on staff or on retainer. Consider these points before choosing this model:
- As a legal entity, a corporation remains separate from its owners, who are stockholders.
- Taxing of profits occurs twice at the corporate level and upon distribution to shareholders.
- Shareholders do not assume personal liability for company obligations unless executive personnel have not observed corporate formalities, among them: issuance of stock certificates, annual meetings, recorded minutes of these meetings and regular election of new board of director members and reelection or reappointment of board members already holding positions.
- Sub Chapter S Corporation (Inc. or Ltd.) Similar to the C Corporation, this model, however, does sidestep double taxation. When a company meets IRS standards for S status, it is taxed in the same manner as a partnership. So, the entity itself is not subject to taxation rather, revenues flow down to shareholders, who report it as income on personal returns.
Mission Possible: Mission Statement
The U.S. Small Business Administration describes a mission statement as a short declaration explaining the thrust of a business. While writing one may seem a trivial matter, don’t make the mistake of underestimating its impact. Most experts insist a mission statement is a vital mechanism for informing consumers, clients, media and the general public of the company’s central philosophy, as well as for providing a succinct picture of your firm’s purpose, market and distinctive edge over competitors.
Since a mission statement is brief by nature, make sure to pack a lot of power into this handful of sentences. Here are some tips:
- Invite staff, friends, family or colleagues to provide constructive input during the writing process.
- Go for brevity. When roughing out the mission statement, strive to do this in three or four forceful sentences.
- Use clear terminology to honestly state goals, objectives and your customer service philosophy.
- Avoid exaggeration and embellishment.
- Include underlying corporate values.
- Strive for stylistic professionalism. If possible, seek help from prose-savvy associates and proof, proof, proof.
- Business goals and structures can change so update your mission statement as the need arises.
- Display your mission statement on Web sites, brochures, annual reports and all other corporate literature.