Starting a new business is actually quite simple: get an employer identification number (EIN) from the Internal Revenue Service. In some industries you also need to get a business license, for example for sales tax purposes. Some businesses have further licensure obligation(s), with some licensure state required (realtor) and some locally required (Contractor).
You don’t need to form a corporation or do anything else. You are in business!
Is this a wise approach: no. There are several other steps a prudent business follows:
- Get a bookkeeper or accountant to set up a chart of accounts;
- Determine the business form you want to be: a sole proprietor; a partnership; a C Corporation; an S Corporation; an LLC; or some combination.
- Prepare the necessary paperwork to create the entity. This will involve addressing a variety of issues depending on the type of business (e.g. Manufacturing vs. retail), the market (local, national, international); the number of owners (one, many); the capital requirements and contributions; buy-sell restrictions, etc.
- Determine the name of your business. This has two reasons: (a) branding, your image is reflected by the name your use. It is generally the name forever so a lot of thought should go into the decision; (b) availability, folks commonly come up with a great name, only to find someone is already using it. There are several ways to determine availability. The first is the Colorado Secretary of State website. Search for the name you want and see if it is available. As a side note, the Secretary of State has a lot of useful information. A national search is also available for out of state use.
There is a very common misconception by owners: if they form a corporation or LLC, their personal assets will be protected in the event the entity and they are sued.
That position is only partially correct. In a breach of contract matter, the entity generally does protect the individual. However, that is NOT true in the case of tort (e.g. Personal injury). The owner can be personally liable if it is shown he/she was negligent.
So, if you are considering forming a business, we can help in determining what approach is appropriate and help forming and answering the myriad of questions which arise.