You’ve filed your company’s charter document, it’s been approved and sent back to you, and now your LLC or corporation is a reality. Even so, there are some very important tasks that still need to be completed in order to get your company off on the right foot and to keep it running smoothly. Some of these tasks are mandated by state and federal law, others are simply a matter of good business practice.
Review your charter document
Once you receive the file-stamped copy of your charter document, review it carefully for accuracy. It is essential that the paperwork is completed accurately and that the state has the correct information in its files.
Obtain your EIN
To remain in compliance with the federal government, you must file for a Federal Employer Identification Number (FEIN). You can do this by submitting a completed Form SS-4 to the IRS by mail, fax, phone, or online. An FEIN will be required when you open your company bank account, process payroll, and complete various state and federal tax returns.
Consider S-corporation election
If you formed a corporation and want the shareholders to be taxed rather than the corporation itself, you can elect to be taxed as an S Corporation by filing Form 2553 with the IRS, allowing S Corporation shareholders to report corporate income on their personal tax returns. Electing S Corporation status is one way to avoid double taxation on corporate profits. To make the election the corporation can have no more than 100 shareholders and must file Form 2553 with the IRS within 75 days of the beginning of the tax year the election is to take effect.
Consider alternative tax status
If you formed an LLC and are electing an alternative tax status you must file Form 8332 with the IRS within 75 days of the beginning of the tax year the election is to take effect. By filing this form your LLC can elect to be taxed either as either a “C” or “S” corporation rather than as a disregarded entity or partnership.
Post-formation tasks required at the state level differ from state to state. Some states, such as Arizona, Georgia, Nebraska, Pennsylvania, and New York, require you to publish notice of the formation of your LLC or corporation in a newspaper in the state or county where your company’s principal office will be located. Some states require you to obtain a state business license. Others require you to file an initial report with the Secretary of State.
Comply with state and local regulations
You must also comply with state and local labor and revenue requirements. Check with your state’s Department of Revenue and Department of Labor for tax, unemployment insurance, and workers’ compensation requirements.
Managing company funds
Open a company bank account. It is extremely important that you keep company funds separate from your personal funds. You should never comingle personal funds in your business account. If necessary, transfer funds between the accounts and make sure to mark the transfer as a draw.
Observe entity formalities
Corporations must hold an initial organizational meeting, at which the shareholders will appoint directors and officers, prepare and adopt bylaws, prepare and adopt resolutions, and issue shares.
LLCs are not required to hold meetings like corporations, but they should still follow some formalities. LLC members should prepare and adopt an operating agreement, appoint managers, and issue membership interests.
Whether your business is a corporation or an LLC, it is very important that you set up a company records book, which I’ll talk about in a later segment.
Make sure your company is properly insured—consider everything product liability coverage, errors & omissions to workers compensation.
You must also obtain all required licenses and permits.
If you have employees it will be necessary to set up payroll tax information.
Set up your business as if someone will take over and run it for you. Systemize and organize. This means having policies and procedures in place to process orders, pay bills, employees, and taxes, maintain your licenses and permits, etc. You want to systematize your business so you can spend more time working on your company rather than in it.
Completing these post-formation tasks will make your company’s first year a success, without the pitfalls that rob you of time and money. You don’t want to be hit with penalties for not filing on time or providing the correct documentation. By taking care of all these post-formation tasks you’ll get your new company off to a fantastic start.