Once the entity type and business name have been selected, it is time to begin the process of formally creating the company and making sure it is properly licensed. The first step to achieving that goal is drafting the governing documents of the business.
If the company is a corporation, these will be the articles of incorporation and bylaws. If it is an LLC, it will be the operating agreement. If it is a partnership, it will be the partnership agreement. Once this is done, the company will be ready to register with the secretary of state. Registering with the secretary of state is a relatively simple process that can be done online.
When registering its business, a company must select a “registered agent.” A registered agent, whether an individual or an entity, is a party that accepts legal and tax documents on behalf of the company and is obligated to forward those documents to the company.
While the registered agent could be a founder, director, or officer of the company, it is very common for companies to pay a registered agent service to fulfill the role for them. This gives both anonymity from those prying eyes that search through companies’ public records and continuity as those involved in the operation of the company change over time. It is also possible for a company’s lawyer to serve as the registered agent.
The next step in the process is to apply for federal and state tax identification numbers. These are essentially the equivalent of a social security number for an entity. The federal tax identification number is called an Employer Identification Number (abbreviated as FEIN or EIN), while the name of the state number varies by state (e.g., WA-Unified Business Identifier (UBI), OR-Business Identification Number (BIN)). Businesses can apply for these numbers online.
The penultimate task when opening a business is to obtain the requisite licenses and permits. There are many different licenses and permits that a business may need. Broadly, they can be broken down into two groups: (1) geographic licenses/permits and (2) industry licenses/permits.
Geographic licenses and permits are those that are required to do business in a specific location (e.g., state, county, municipality), while industry licenses and permits are those that are required to do a specific kind of business (e.g., agriculture, commercial fishing, making or serving alcohol). It is important to stay up to date with these licenses and permits as they generally must be renewed every year. Additionally, if a company chooses to enter new geographic or economic markets, they will need to obtain the proper licensing before doing so.
Lastly, a company must open a business bank account. It is very important that the company do so before starting operations because mingling company and personal assets can lead to a devastating loss of liability protection.
If you have engaged qualified legal counsel, they will be very familiar with this process and will be able to help you through it. With the exception of a few tasks, they can even do it for you. With that in mind, if you are thinking of starting a family business, be sure to work with an experienced business lawyer early and often.