Qualifications for Starting a Business
Any individual may form a company. Generally, the minimum age is 18. In most states, you are not required to be a resident of the state to form a company. Some states even allow one company to form another company.
Persons who are neither citizens nor legal permanent residents of the United States are also free to organize and run any type of business organization in their own name. The LLC would be the most advantageous, because it allows foreign nationals as owners (unlike an S corporation) and it avoids corporate taxation (unlike a C corporation). Two legal issues should concern foreign persons when starting a business—their immigration status and the proper reporting of the business's foreign owners.
The ownership of a U. S. business does not automatically confer rights to enter or remain in the United States. Different types of visas are available to investors and business owners, and each of these has strict requirements.
A visa to enter the United States may be permanent or temporary. Permanent visas for business owners usually require investments from $500,000 to $1,000,000 that result in the creation of new jobs. However, if structured right, there are ways to obtain visas for smaller investments.
Visas: For more information on this area, consult an immigration attorney or visit the United States Citizenship and Immigration Services (USCIS) website, at Www. uscis. gov.
Temporary visas may be used by business owners to enter the U. S. These are hard to get because in most cases, the foreign person must prove that there are no U. S. residents qualified to take the job.
United States businesses that own real property and are controlled by foreign persons are required to file certain federal reports under the International Investment Survey Act, the Agricultural Foreign Investment Disclosure Act, and the Foreign Investment in Real Property Tax Act (FIRPTA). If these laws apply to your business, consult an attorney who specializes in foreign ownership of U. S. businesses.
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Figure 1.1: HOW TO PROCEDURES
Having an understanding of the characteristics of the typical entities used by entrepreneurs and a grasp of the advantages and disadvantages of each is an important first step on your journey. However, it is equally important to know how to get started. The following are checklists of actions to be taken and issues to be considered when starting your entity.
□ File or open all accounts, property, and licenses in the name of the owner. (States require the filing of no special forms in starting a sole proprietorship.)
□ File for a fictitious name (e. g., John Jones doing business as (d/b/a) Phoenix Car Wash) with the state or county, if necessary.
□ Apply for a federal Employer Identification Number if you are going to have employees.
□ Prepare a written Partnership Agreement to spell out rights and obligations of the parties.
□ Some states (previously mentioned on page 5) require registration, but most do not.
□ Most accounts, property, and licenses can be in either the partnership name or that of the partners.
□ File a fictitious name statement if you are doing business in the name of the partnership.
□ Draft and file a one-page Certificate of Limited Partnership with the
State, along with the appropriate filing fees.
□ Draft and sign a complete Limited Partnership Agreement (agreement
Should be signed by all partners).
□ Have an attorney organize a limited partnership and prepare the Limited Partnership Agreement because of the complexity of partnership taxation. (The Limited Partnership Agreement is a private document and is not filed with the state.)
□ If you offer to sell units of limited partnership interests to investors, the Limited Partnership Agreement should be part of the disclosure documents.
□ File the Articles of Incorporation with the state, along with the appropriate filing fees. The articles set forth the name of the company, its authorized capital structure (how much common and preferred stock a corporation can issue), establishes an address for the company, and identifies a registered agent.
□ After filing the articles, an organizational meeting is held. At the first meeting, bylaws are adopted, directors and officers are appointed, stock is issued, and other formalities are adhered to in order to avoid the corporate entity being set aside later and treated as though it never was formed.
□ Licenses, bank accounts, and vendors are taken in the name of the corporation.
□ States require ongoing annual filings that list the officers, directors, and stock structure of the company.
□ The annual report is usually due in March or April of each year, and is subject to penalties and interest if filed late.
□ Corporations are also required to keep ongoing corporate governance records (minutes).
□ The bylaws are a private document and are not filed with the state. Limited Liability Company
□ File Articles of Organization with the state, along with the appropriate filing fees. (The Articles of Organization establish the name and address of the company, identifies the registered agent, and defines the term of the company. Most states allow an LLC to have a perpetual existence like a corporation.)
Continued
□ An LLC is generally not required to have much in the way of corporate formalities.
□ Licenses, bank accounts, and vendors are taken in the name of the company.
□ Most states require an LLC to have a governing document called an Operating Agreement. Drafting an Operating Agreement is highly recommended even if it is not required by state law.
□ The Operating Agreement is a private agreement among the members of the company and is not filed with the state. (However, if you sell membership units to investors, the Operating Agreement should be included as part of the disclosure documents, because the investors are becoming new members of the company.)
/ Figure 1.2: BUSINESS COMPARISON CHART1
|
Sole Proprietorship |
General Partnership |
Limited Partnership |
Limited Liability Company |
Corporation (S or C) |
Nonprofit Corporation |
|
|
Liability Protection |
No |
No |
For Limited Partners |
For All Members |
For All Shareholders |
For All Members |
|
Taxes |
Pass Through |
Pass Through |
Pass Through |
Pass Through |
S Corps. Pass Through; C Corps. Pay Taxes |
None on Corp.; Employees Pay on Wages |
|
Minimum Number of Members |
1 |
2 |
2 |
1 |
1 |
3 in Most States |
|
Different Classes of Ownership |
No |
Yes |
Yes |
Yes |
S Corps. No; C Corps. Yes |
No Ownership; Diff. Classes of Membership |
|
Survives After Death |
No |
No |
Yes |
Yes |
Yes |
Yes |
|
Best For |
One Person, Low-Risk Business or No Assets |
Low-Risk Business |
Low-Risk Business W/Silent Partners |
All Types of Business |
All Types of Business |
Charitable, Educational, Religious, Scientific |
|
J |
Figure 1.3: BUSINESS START-UP CHECKLIST2 Make your plan
□ Obtain and read all relevant publications on your type of business
□ Obtain and read all laws and regulations affecting your business
□ Calculate whether your plan will produce a profit
□ Plan your sources of capital
□ Plan your sources of goods or services
□ Plan your marketing efforts
□ Check other business names and trademarks
□ Reserve your name and register your trademark
□ Prepare and file organizational papers
□ Prepare and file a fictitious name document (if necessary)
□ Prepare and file with the state the initial report of officers and directors (if necessary)
□ Check competitors
□ Check zoning
□ City
□ County
□ State
□ Federal Choose a bank
□ Checking
□ Credit card processing
□ Loans
□ Workers' Compensation
□ Automobile
□ Liability
□ Health
□ Hazard
□ Life or disability
File necessary tax registrations
□ Obtain federal EIN by filing Form SS-4
□ Obtain state tax identification number (if necessary)
□ Keep track of receipts
□ Hire an accountant
Keep separate accounts for personal and business
