How to Create A Business
In this post, I'm going to go over the nitty gritty of starting a business. This is going to contain some details you won't learn in other places than the School of Hard Knocks™. This is just the process I followed as I did a lot of learning and research and this is my attempt to document the approach I took in order to get my business(es) registered with the state of Texas. This is also going to be specific to Texas since that's where I currently reside and where the businesses were created.
I presume all states have their way in which they want you to register the business. Please do your own research to make sure you are following the correct laws and such.
Disclaimers
I am not a lawyer, nor a CPA. I would like to consult with these officials in order to confirm if the steps I'm following in this blog post were correct. I do not take any liability if you decide to follow this post. This is merely for information and education purposes only.
I am also based out of Texas. If you are reading this from another state, please get familiar with local laws to ensure you are compliant with your state as well.
If I missed something, please comment below and I will update!
1. Business Plan
It comes without saying that a business plan is crucial to starting a business. A business plan helps you think thru the details and get past the "great idea" phase of something to see if its actually viable and reasonable to create a business out of it.
A business is basically a function in computer programming, but in real life. It performs some kind of operation, has inputs and outputs and money is the nurturing it needs in order to continue to grow and evolve.
Most people just "have a great idea", but a business is more than a great idea. It's a means of making an operation out of it and monetizing it. If you're serious about it, Here's a template to help you get started!
The SBA or "Small Business Association" is an incredibly valuable asset in helping you get off the ground. They step you through the process and I would highly recommend you take a look to see what resources they can provide to help you get started if you have one of these ideas you think is a great candidate for getting off the ground.
2. Register With State
Next step is to register with the state. This can be done with SOSDirect. It's an incredible service offered by the Secretary of State and what's more: It's just a $300 filing fee (plus 2.7% CC fee they just pass on to you; might be avoidable by funding the account an hour before registering? not sure, didn't go that route).
So folks can register with the state direct instead of paying a lawyer or some company to do this for them.
3. Get an EIN
An EIN (Employer Identification Number) can be obtained directly from the IRS for free. I've seen some services charge upwards of $300 and that's just plain highway robbery!
With this, folks can learn more about filing for an EIN and get a tax ID to be associated with their business instead of using their SSN.
Anyone can file for an EIN/Tax ID using the form above. It's easy and free and just takes a few minutes (during business hours). I think the longest I had to wait for one of the 3 EIN's I filed was 7 minutes. They are usually pretty instant, relatively speaking.
4. Opening a Business Checking Account
One does NOT want to pierce the corporate veil, so it's important to keep clean books on this.
Opening a business checking account specifically for the business is crucial.
I would leave it up to the business owner as to which bank they want to use. Personally, I sought out the cheapest option with the least fees. Since banks are constantly changing their terms, I really wouldn't have any suggestions right off the bat.
Whatever works best for you.
5. Texas Franchise Tax
I'm hearing this one bites people in the rear more often than not. After registering with the state, you'll get a lovely letter from the Texas Comptroller about paying Business Franchise tax.
Don't worry, it's a $0 tax until you make $2.47M in revenue in a year, then it depends on what your business is about to determine how much you pay.
However, if you don't register your account, you'll be liable for a $50 fee. Best to register as soon as you get the letter in the mail as it contains a "WebFile" you'll need to associate it to your account.
Texas Comptroller Franchise Accountability Tax
6. Payroll
It sounds scary at first, but Payroll is actually simpler than it seems if you leverage the right tool.
The solutions I researched includes:
Disclaimer This is not an endorsement nor sponsorship of any of these solutions. This is not an exhaustive list of solutions. Please do your own research before making your selection. This is just what I happened to stumble across in my searches and am just documenting what I found thus far.
Basically, you pay a monthly subscription and someone's software will handle it for you. It would be nice to have this built into Yaba someday. In the meantime, I made a selection and it's helped me in making sure payments and taxes are handled accordingly.
7. FUTA/SUTA: (Federal|State) Unemployment Tax Act
You'll need to follow your state laws regarding paying unemployment tax. They all work different.
In Texas, one would register with the Texas Workforce Commission for an account.
8. Watch For Scams
Personally, I learned something valuable from my crypto days that I carry with me to this day: "Everything is a scam until it's proven it's not".
If you get scary letters in the mail saying "additional documents are needed", please read with caution. There are companies out there that advertise to new businesses and folks that don't know better and use these kinds of tactics in order to get you to pay them for things you can do yourself with very little overhead.
They send out these notices that are actually advertisements that look like official scary documentation that says you need to pay this money in order to finish filing your business. Don't fall for the hype. I don't understand how these types of entities can legally operate and not be taken down for libel, but I guess this could be your first lesson in discernment. In this particular example, there's small print near the top right that says "this is an advertisement", which is probably the only legal fragment making this legit.
Bonus Details
What's the difference between Sole Proprietor, LLC, S-Corp and C-Corp?
Sole Proprietor
You are the sole entity and everything is aligned to your SSN. You are technically not regarded as any kind of corporate entity and usually the taxes are higher.
LLC: Limited Liability Company
This is a registered entity that is almost like a corporation, but limits your liability. Allows you to file as a corporation and eases some of the tax burden if you know what you're doing.
S-Corp: Subchapter "S" Corporation
Personally, I found it easier to call this a "Self-Corp" of sorts since it's best for small business. You can have 100 or less managers of this kind of entity and there's some tax benefits, but this classification via an LLC means its a "passthrough", meaning the corporation itself is not taxed. However, the taxes to the managers is reduced in that you can deduct your expenses as a business before being taxed on the profits; whereas in a standard W-2 based 1040 situation, you are taxed first and receive the remainder.
C-Corp: Subchapter "C" Corporation
I found this easier to call it a "Corp-Corp" or to understand it as like a "Proper" Corporation. You can have more than 100 managers, it can go public on the stock market, it gets taxed separately from the managers and there's a lot more to this kind of structure that differentiates it from the S-Corp filing.
As an LLC, you have a choice in how this is done and typically, Form 2553 is used to file as a S-Corp.
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