Mitigating Startup Challenges

You already have a well-formed business idea and plan. Now it’s time to make that idea a reality. There are many important steps when starting a new business, but the process can be long and confusing for even a seasoned entrepreneur. We recommend prioritizing these start-up essentials to avoid common challenges of a business start-up. 

Each business entity type comes with a different set of implications. When starting your own business, it will be important for you to understand which business entity will work best for you. Here is a brief description of each main business structure to get you started:

• Sole proprietorship. Formed, managed, and controlled by only one person – the owner. This is perhaps the simplest form of organization but includes unlimited liability for the owner.
• General partnerships. Owned and operated by two or more people. As with a sole proprietorship, all partners have unlimited liability in a general partnership.
• Corporation. In this structure, the entity is owned by a list of shareholders. Since corporations are a separate legal entity, owners have limited liability. Corporations are taxed separately from the owners, though the taxation process varies between an S corporation and a C corporation. 
• Limited liability company (LLC). Provides owners with limited liability in a non-corporate structure. An LLC is a separate legal entity from the owners and functions like a hybrid between a corporation and a partnership.

Each structure has different tax implications, so it will be important to talk to an accountant and/or an attorney to discuss the cost, complexity, tax laws, and purpose of each type of enterprise. 

Once you’ve decided on the type of entity, the next step will be to file the appropriate documents with the state of Illinois. In order to do so, you’ll need a proper name for your business. Remember, if you want to include “Corporation” or “Inc.” in your business name, you must incorporate. You may already have the perfect name in mind, but make sure to check if the business name is not already in use by utilizing the Illinois Secretary of State online search feature. You’ll alsowant to register a domain name once the name of your new business is approved.

After your state documents have been file and processed, it’s time to apply for an employer identification number (EIN) by filling out Form SS-4. Sole proprietorships, partnerships, corporations, and other entities are all assigned a nine-digit EIN number to be used for tax filing and reporting. If you’ve chosen to incorporate, there will be additional forms to elect S-corporation status. These forms will need to be completed and sent within 90 days of receiving the acceptance letter from the Secretary of State. In addition, Illinois requires registration with the Department of Revenue and the Department of Employment Security. These registrations must be completed using Form Reg-1 and Form U1-1,respectively.

We understand that starting a new business is both exciting and frightening. With so many things to consider, we want you to have the necessary tools and information during the start-up process. At Klein Hall, we can provide you with financial and planning guidance to make the best decisions for your future business. Contact us to get the conversation started.