How to Form a Company in the United States

blog-21-in-article-300x200Since many product developers are also forming a company as part of bringing their product to market, company formation should be considered a key part of product launches. And it pays to approach company formation by the book as not following the letter of the law can have serious legal and financial consequences. The good news is that the information you need, from state regulations to federal concerns, is readily available online and through your local Small Business Administration office.

What follows is a primer that outlines some of what you’ll need to know when forming a company in the US as part of new product development. Obviously, a single blog post can’t cover every step in the process in detail but the links in each section will lead you toward additional information.

Choosing Your Business Structure

Assuming you’ve created a business plan and you have a handle on the financial side of your business, the next step is deciding what legal structure makes the most sense for your company. Your choice will impact (among other things) taxation, personal liability, funding, and how you keep records moving forward. The most common forms of business are sole proprietorship, partnership, corporation, and S corporation but there are other options.

  • Sole proprietorship: This is the most common and most basic type of business, which has a single owner who is responsible for all assets and liabilities.
  • LLC: A limited liability company combines the benefits of corporations (limited liability) and partnerships (tax efficiencies and flexibility).
  • Partnerships: In general this structure involves two or more people who’ve agreed to share in the profits or losses of a business, though there are several different types of partnerships.
  • Corporations: A corporation is a legal entity created solely to conduct business and generally best for established companies with multiple employees.
  • S Corporation: An S Corp has independent legal and tax structures separate from their owners, who must hold annual meetings and record meeting minutes.
  • C Corporation: A C Corp is similar to an S Corp, but has no limits on the number of shareholders.

When looking at the pros and cons of the various common business structures, it makes sense to seek out advice from a small business or tax lawyer who can guide you toward the right choice and help you file the necessary paperwork. It’s important to note that your initial choice of structure isn’t set in stone. As your business grows or your risk of liability increases, it can make sense to convert your business to an LLC or even a corporation.

The Legal Requirements

Depending on which business structure you choose, you’ll need to fulfill certain local, state, and federal requirements to be able to do business legally. Typically, the first step in company formation at this point will be registering your business name – a process known as registering your “Doing Business As” (DBA) name.

When a business is formed, the legal name of that business defaults to the name of the individual or entity that owns the business until a DBA name is registered. Not all states require DBAs for all structures, but in general you will need to register a Doing Business As name if you’ve chosen to form a sole proprietorship and don’t want to do business under your name or if you have formed a partnership. Also, if you have formed a corporation or LLC and don’t want to operate under the legal name of the business, you can register a DBA. This is done either at the county clerk’s office or with the state government when required.

Why is something that should be as simple as a name so important? When you are filling out government forms and applications, including those for your employer tax ID (EID) and for any and all permits, you will need to use the correct legal name of your business at all times.

Next, you need to acquire the appropriate tax identification number to ensure you can meet your business’ federal and state tax obligations. Each state and locality has its own tax laws, and your income tax requirements will depend on the legal structure of your business as well as your locale.

The first and most important thing businesses need is a federal business tax ID, or EIN, which you can apply for online. Businesses with employees are required to pay state workers’ compensation insurance and unemployment insurance taxes, and in some states, will also pay for temporary disability insurance.

Finally, research what federalstate, and local licenses and permits are required for your business to operate legally.

The good news is that the Small Business Administration website is set up to help new businesses get set up properly, from idea to implementation, and they have on the ground support in their local branch offices. Even better, the help they offer is typically free.

 

Getting Your New Business Off the Ground

New product development isn’t immune from the day to day requirements of startups, which include creating content, branding, pre- and post-launch marketing, and maybe even setting up an office and hiring personnel. These are tasks that many new companies only take up after they have made it through the rigors of legal company formation but it actually makes more sense to begin implementing your branding and marketing strategies ASAP.

Ideally, if your budget allows, hire a lawyer to handle the official formation of your business so you can focus on operations and getting your product ready for market. And if your budget doesn’t allow, definitely make use of the resources available online and off to be sure you get it right the first time.

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Jarrod Barker
About the Author
Jarrod Barker
Jarrod has a keen interest in technology development and operations. He has an honours degree in Mechanical Engineering and his industry experience spans product design, sports technology, medical device engineering and power generation. He has worked for a leading design consultancy in Cambridge, UK and now runs the Outerspace branch in San Diego USA.

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