Legal Start-up Requirements for your Veteran-Owned Business w/ Wes O’Donnell
Wes is a highly sought after presenter who has recently spoken at TEDx on Data Visualization and is speaking at the US Air Force Academy on Leadership. Most importantly, Wes is a veteran and believes that when all 21.8 million of us are united, we can change the world. Connect with Wes on LinkedIn.
“Don’t worry about funding if you don’t need it. Today, it’s cheaper to start a business than ever.”
—Noah Everett, Twitpic founder
So you’re ready to take the leap and start your business! In this post, I would like to discuss a couple of quick housekeeping items that you have to do before you launch your business. Let’s take them step by step.
File organizational documents with the state
First, if you’ve decided to run your business as a sole proprietorship, then you can skip this step. Only LLCs and Corporations need to file organizational documents with the state. In most cases this is the Secretary of State’s office. Every state is different so once you visit those sites, you can get a complete rundown on what, precisely, is required. But by and large, for LLCs it will be a set of documents called the “Articles of Organization”.
For most states, it’s at this point when you will also be registering your company’s name with the state. If a company with the same name as you already exists in your state, then your Articles of Organization will be rejected, so it’s a good idea to visit your state website and do an online search for companies with names similar to yours. There was no MD-Advantages in Oklahoma or Texas (I have offices in both states) when I first started but there is an MD-Advantage (singular) on the east coast that sells liability insurance to physicians. Apparently this wasn’t a problem because they accepted my documents without delay.
It was also just as easy with Modern Workspace and Warrior Lodge, my other two companies. Having said that, this is the part where I endorse Legal Zoom. (I get no compensation for this endorsement, I’ve just had a good experience with them). For $99 plus my state filing fee, they took care of everything including a preliminary name search to ensure that my documents didn’t get held up. In the interest of saving you time so that you can focus on building your business, I recommend budgeting for the Legal Zoom expense up front and just letting them handle it.
LLC State Filing Fees as of January 2016
|District Of Columbia||$220|
Obtain a Federal Employer Identification Number (FEIN aka EIN)
An Employer Identification Number is a number that the government uses, like a SSN for an individual, to identify a business. You will be using this number repeatedly on numerous business documents as you grow your company. If you are a sole proprietorship or single member LLC you can technically use your social security number instead, but I don’t recommend it.
Getting an EIN is extremely easy (and free). You can do it the old fashioned way by obtaining a paper copy of an IRS Form SS-4 and fill it out. Line one asks for your legal business name; this should be the same as it is on your Articles of Organization. As an example, my SS-4 Line 1 would read “MD-Advantages LLC”. Line 2 is going to ask for the trade name of your business; something called a “Fictitious Business Name” or DBA (Doing Business As) name. For me, my line 2 would read “MDA”. And line 3 is very straightforward information.
Once that’s filled out you can call the IRS at 1-800-829-4933 and relay the information on your form to the IRS representative. He or she will give you’re your EIN right then and there and you can start using it immediately. You can also fill it out online here: http://www.irs.gov/Businesses/Small-Businesses-%26-Self-Employed/Apply-for-an-Employer-Identification-Number-(EIN)-Online
I cannot stress the importance of having this number for your business interactions; you’ll be using it on nearly everything. For instance, the Stennis Space Center wanted to buy some A/V furniture from me but they had to have me fill out paperwork to become an official vendor with them, and the EIN was the second piece of information they requested on the form, right after my business name. Conversely, I wanted to buy medical carts from a manufacturer and resell them for a profit and the EIN was required to apply for business credit with them. And finally, any interactions with the government, like the application process to become a Service Disabled Veteran Owned Small Business requires this number.
One last thing, if you are letting Legal Zoom handle the LLC start-up as I recommend, then they do the IRS SS-4 for you also. They will send it to you filled out and all you have to do is sign it and mail it back.
Register a DBA Name if needed
Unless you’re a sole proprietorship, you do not need to file a DBA (Doing Business As) name unless you will be operating your company under a different name than is stated on your Articles of Organization. Because I didn’t follow my own guidelines for picking a good company name, I started off as MD-Advantages LLC. I later registered a DBA name as MDA to make it easier on my customers and not diminish my brand by constantly explaining the spelling and punctuation of my business name.
Registering the DBA is usually done at the county level. You should start out by calling your county and inquiring as to what the registration requirements are and what the fee is. After that, it is a fairly straightforward process: You will search your county’s name database online to ensure that the name isn’t already in use by another business. Next, you simply fill out your county’s form, get it notarized and mail it back with the fee which will be anywhere between $10-$60, depending on where you are. Legal Zoom will handle all of the DBA paperwork too but the fee is a little high: It’s $119 + the county fee, for their DBA service. Up to you which is more important in your particular situation, $119 or your time.
There is one final step that only applies to certain states: Some will require you to publish your DBA statement in your local newspaper, (yes… an actual “paper” newspaper) and run the ad for a couple weeks, then submit an affidavit to your county to show that you have fulfilled the publication requirement. Why? I don’t know. Sounds like an antiquated procedure to me. In any case, this is why you should call your county clerk first and ask about the requirements.
Obtain a State reseller’s certificate for state sales tax
If you live in one of 45 states (Alaska, Deleware, Montana, New Hampshire and Oregon don’t have state sales tax), then you will have to obtain a State Reseller’s Permit also known as a State Reseller’s Certificate or a State Tax Certificate before you can start selling goods.
It works like this: If you sell retail goods, you have to collect sales tax from your customers in an amount dictated by the state that your business is headquartered in. Usually this is between 6%-9% and that includes county and city taxes. For instance, the state sales tax for Texas is 6.25% + Dallas County and City taxes add another 2% bringing it to 8.25%. This Texas percentage is pretty representative of what you will find in most states. You will then have to pay your state quarterly for all of the taxes that you collected during the previous 3 month period.
Despite the horror stories with taxes being overly complicated, this is actually a very easy process as most states have a simple online portal for electronically paying your taxes at the end of a quarter. In addition, if you are selling through an online store, you don’t have to charge customers sales tax at all, unless the customer’s shipping address is located in the same state that your business is headquartered in. Having said that, the Feds may change the law eventually to require you to charge everyone sales tax for online transactions. Why? Well, the argument is that online sales hurt local economies; after all, why would I buy that TV from Best Buy when I could order it online and get it tax free?
The vast majority of states have an online application form at their Department of Revenue website. You need to be ready to supply your Federal EIN (or Social Security Number if you’re a Sole-Proprietorship or single-member LLC), your legal business name, your Doing Business As name (if you have one), your shops physical address (even if it’s your home). In addition, you’ll need to supply what date your sales began or what date you anticipate opening your doors to the public, the types and description of the stuff you’re going to sell and a general estimate of the monthly sales tax that will be collected in the future; (this last bit is merely an educated guess on your part).
That’s it! Extremely easy and extremely cheap to legally start a business in the United States. Many people are scared off by this process, but it’s relatively pain-free, if you have the road map. Are you starting a veteran-owned business? Sound off in the comments!