How Do You Legally Set Up a Business?

How Do You Legally Set Up a Business?


Have you been considering pulling the trigger
on that million-dollar business idea? You’ve got a killer product and genius marketing
plan. But what about the finances, legal, and tax
stuff? LLC’s, Partnerships, DBA’s, S Corp…ahhh!! The sad truth is, too many people put off
implementing a good idea in the proper way because they’re intimidated. But fear not — we’ve got you covered. And it’s probably not as complicated or
as costly as you might think. So let’s get our Business Building Blocks
out and see what goes into building a business the right way. The first step is to put on your CFO hat and
get to work setting up your finances correctly. Do you need to set up a business bank account? Or is a personal checking okay if you’re
just starting out? Experts agree that the most important thing
is to separate your business money from your personal money. Completely. No leaks! It will help you avoid bookkeeping and tax
headaches before they start. And when you’re just starting out, using
a separate personal checking account can be fine, but eventually, upgrading to a BUSINESS
checking account can offer special benefits — like additional protection of your personal
assets if things go south. All your initial set up costs like a website
or logo-design should come from this account and not your personal one. It will also eventually be the destination
for income once those benjamins start rolling in. Now it’s time to decide on a legal structure. If your business is on the smaller side, you’ve
got some simpler options, like the Sole Proprietorship. A “sole proprietor” business has one owner,
you, and is not a separate entity under the law. If this is your choice, you won’t have to
file anything with the government to get started But you may be personally held responsible
for any debts the business might incur. And come tax time, all the profit or loss
from that business will run through your personal tax return. You can operate the business under your own
personal name, or you can choose to use a DBA or “doing business as”. For instance, when I had a professional organizing
business, I wanted my clients to be able to make checks out to “Swiss Miss Organizing,”
rather than my name. It just felt more professional. But before I could get a business account
called “Swiss Miss Organizing,” I had to file a DBA for that name. This is done at the county level, and most
counties allow for a pretty easy online filing process. There will most likely be filing fees, but
it’s usually under a hundred bucks. If you decide to share ownership of a business
with at least one other person, then you’ll need to form a partnership. It might be worth it to hire a small business
attorney to help you draft up an agreement. The money you spend will be WELL worth it
to have clarity of ownership and operating agreements. Small business partnerships implode all the
time due to vague or non-existant contracting. Partnerships require not only a DBA but also
an Electronic Identification Number, easily obtained from the IRS website. This acts like a social security number for
your business and will allow you to file a tax return for the business itself. BUT the business doesn’t pay income tax. Instead, it “passes through” any profits or
losses to its partners, meaning the partners are personally on the hook for any taxes…
or legal troubles. If that sounds scary, you might want to consider
a Limited Liability Company. The LLC shields the partners from most legal
responsibility and protects their personal assets should a client sue the business for
some reason. Putting an LLC in place can cost a few hundred
to a few thousand dollars, depending on your state and whether you hire a professional
to help you. That can increase the cost a bit, but it’s
better than finding out too late that you’re not protected because it was improperly set
up. Keep in mind that the advantages here are
for legal protection only. LLC’s don’t change how the partners are
taxed. For that, you need to go one more step up:
a corporation. The most common type for small business owners
is the Subchapter S-Corporation. Unlike all the other arrangements we’ve
talked about, an S-Corp is considered by the government to be its own discrete entity,
both for legal AND tax-related purposes. Instead of just absorbing the profits (or
losses), your business now PAYS YOU as an employee and/or owner. And because this income is taxed at a different
rate, it can mean some real savings. But there are costs associated with filing
for an S-Corp, and they can get pretty hefty. There’s filing charges, an additional tax
return you’ll have to get prepared, and likely ongoing charges for a payroll service. It all may be worth it for the tax saving
you get… or not. To know for sure, you should speak with a
tax specialist… which brings us to our final building block! Get some experts in your corner. Any small business owner will tell you that
when it comes to laws and taxes, one simple mistake can lead to massive headaches down
the road. Selecting the right business entity is just
one of the many critical decisions they can help you with. When you’re just starting out, we really
recommend building a relationship with a good CPA, bookkeeper, and small business attorney. It’s their job to help you make smart decisions…
while still playing by the rules. Building a small business might feel daunting
at first. But if you take your time, do your research,
and set things up right from day one, you’ll be reaching your dreams before you know it. And that’s our two cents! Sound Field is a new music education show from PBS Digital Studios that explores the music theory, production, history and culture behind our favorite songs and musical styles. Pop, classical, rap, jazz, electronic, folk, country and more… Sound Field covers it all. Hosted by two supremely talented musicians: Arthur “LA” Buckner and Nahre Sol. Every episode is one part video essay, and one part musical performance. So go subscribe to Sound Field! Link in the description below If you’ve ever formed a Partnership, LLC or S-Corp, tell us about your experience in the comments.

78 comments

  1. "Building a small business might feel daunting at first. But if you take your time, do your research and set things up right from day one, you'll be reaching your dreams before you know it."

    thank you for giving all of us hope for the future

  2. Finally a video that tells you how to setup a business in a concise manner! Other videos are too lengthy or doesn't explain all of it so nicely. Let alone the state government's website which was no help and more like a maze.

  3. I'm an entrepreneur grad student at the University of Washington, and I recommend your videos to my classmates all the time. Come visit us in Seattle sometime!

  4. I'm a project manager at a small privately owned civil engineering firm in rural central Illinois. back when I got my P.E. license 12 years ago my dad was trying to convice me to quit and start my own business. I barely knew what I was doing back then, but I did know that starting my own engineering business (especially back then) would be a major career mistake. Now I'm the head of the civil department and working more closely with the owners. There is absolutely no way I'd ever start my own company just by what I'm seeing with me and the owners struggling to keep this company afloat. All we're doing is barely surviving and not making much profit and some years we actually suffer losses.

  5. I am a single member LLC owner of a cleaning company that I started 2 months ago! This video was awesome. I would like to add general numbers to help some (especially those in Kentucky like me) fill in the gaps. I paid $40 to file my LLC directly from the Secretary of State website, $13 for a DBA name/Certificate of Assumed name, $100 to open a business account (with LLC paperwork), $25 to register my business in a neighboring state for taxes, and $178 for almost all of my cleaning supplies from a local janitorial store! I have monthly subscriptions for gsuite which gives my business a professional email $6 a month, an app that tracks my appointments, jobs, employees and income $19 a month and I just got Intuit QuickBooks for bookkeeping for $12 a month (it’s usually is $40 a month but I am using the Labor Day sale discount for two more months). For insurance, it’s $35 a month for bonding and $54 a month for business insurance. I found a local CPA that does payroll (through quickbooks) and taxes for $145 a month. Running a business is not too expensive depending on what it is! Home & Business Cleaning/ Window washing/ lawn care are some of the quickest and cheapest businesses to start! Hope this helps!

  6. If you're young and going to go into business with a friend…Get. EVERYTHING. In. Writing. Back it up. Record the signing. Everything.

    Lost a "best friend" and several years of my life because I didn't think my friend would ever screw me over and I didn't want to over complicate the business early on. Terrible idea.

    He made out like a bandit and all I made out with was the priceless experience that business and friendships don't mix.

  7. Most examples when free sociaty becomes a Dictstorish . 1930sGermany 1950s/60s Korea. 1990s Venozela. It's the corporations but media that becomes the Enimey of the people.
    Oh government countrol of media
    What gives Maduro power is control of the Corporations. The Entire point of socialism

  8. s corp when you have consulting bizz with steady income and less liability. llc is for startups involved in product development that might disrupt existing industry and could be held liable for any resulting disruption and their is no possibility of profit in short term.

  9. I wish I had this video sooner! I formed an LLC but then got some out-of-state clients. I realized that I don't want to spend a ton of money registering as a foreign LLC in that state, so I'm thinking of dissolving the LLC and becoming a sole proprietor, but I have to speak to a CPA first. Thanks for the video!

  10. Such a timely video. My hubby and I just registered our business 2 days ago. We are ready to make the plunge. Thanks for such a great and concise video. Keep them coming! 😊

  11. I and a friend was close to enter/form a partnership, but he was under 18 which in Swedish law meant he was a minor. To our surprize he not only needed a signed aproval from his guardian/guardians (in our case just his mother) but turns out that each minor had a so called "over guardian (or "supreme guardian" , if you will) in the municipality where the minor resides.
    His "over guardians" declined our request to form a business partnership due we had to take a loan.

  12. It will be good to add that you can choose how to be taxed with an LLC. You can elect to be taxed as a sole proprietor, s-Corp, or c-Corp. Definitely a great benefit!

  13. I'm a licensed Dietitian and set up an LLC 5.5 years ago for private practice. Last year I converted into an S-corp per recommendation of my CPA–the payroll expense and extra tax return he does are cheaper than paying the taxes under a different structure.
    This year, I am at the threshold of needing to outsource my medical billing instead of doing it myself because 1) I'm tired of working everyday all day 7 days a week and 2) seeing 5 more clients a month (which I've been turning away business because of being behind insurance filing deadlines and needed more admin days) makes it break even. Oh, and FYI, United healthcare is the only insurance who has asked me to pay back 10 months of claims they finalized and paid after suddenly deciding in April their member didn't have coverage. I'm tired of appealing that–no other business professional has to deal with getting paid and having them offset your other patient payments with their mistake. This is why healthcare coverage needs to be made transparent with lawmakers, regardless of if you choose single payer or private. No one, including providers, like how insurance makes the rules, has the gold, and has all the power in not paying for members (this guy was 5'10" and 385 and somehow they got around the ACA law on coverage for nutrition and obesity counseling).
    I'm in Austin too btw! The LLC here (TX) is about $200 and lasts 10 years.
    I'm also debating staying with email scheduling vs electronic scheduling because in my line of work people don't want it to be too automated.

  14. I had what I believe would be a great idea for a bacon jerky snack. As it turns out, it appears to be easier to start a drug cartel than it would be to sell meat legally.

  15. Thank you for this video! When I worked for a large home improvement chain in their b2b side of things, the number of times clients would try to come to me for finical advice was scary! I would always tell them to speak with legal or tax professional (cause if I'd known the answers to those questions, I wouldn't be working there and would've made more money 😅).

  16. I want to start a dog walking business but this whole legal crap is freaking me out . I don’t know if I am over thinking things ( I am known for this ) I starting to feel like I don’t know what the hell I doing.

  17. I'm going through this process now and it's been preeetty painless but that's mostly due to talking to a lot of experts. We're not really making much money yet so bringing on all of those other professionals is kind of a hurdle.

  18. 10 or so clicks, and it's done – you have a full blown corp! Most of the time goes for naming your company. You never leave your home.

    … In Estonia.

  19. Formed a partnership with family. No legit articles or boundaries. Worst. Thing. Ever. We rushed into the whole process becuase my employer suggested it. I would get paid per job instead of per hour. Seemed like a good deal, and it was, but the partners way of doing business was opposite my own.
    Set up process was fairly easy.
    Taxes hit us hard though because the partner refused to spend $ on a professional, so we did them ourselves and got hit with almost 3k in penalties.

  20. Ya find it funny how they made a women be the business owner and shit? 😂 I know it’s possible but let’s be honest. Most CEOs are men (sadly) 😂 be more accurate

  21. Formed my SCorp LLC 12yrs ago. Worth every penny. I used an attorney once to file, and never again. Still have the original CPA, but burned through bookkeepers, on #7 I think. It was surprisingly cheap to start the biz, and registration and taxes are piddly ongoing. My best advise is get your pricing right, start higher than you think, it's easier to offer a temporary discount than to raise an existing price.

  22. One more Pro you missed: Insurance Agent. Business Liability, and for some professions Errors and Omissions or Malpractice insurance are pretty critical.

  23. The sad thing is this is a easy stuff, the regulations and such are where things quickly can get crazy. Like for an example a restaurant kitchen needs to be clean under the law, except the law doesn't actually define what clean is. Instead you have a system you follow, but no actual numbers that clearly state what you suppose to end up on. So clean could be 100,000 parts per million and ok, as long as you followed the guidelines. it just makes no sense, how you can have a rule without base foundation to support it. It's like saying you can't speed, explaining how not to speed but you're never told the speed limit.

  24. What if you own a LLC and you start making allot of money. Can you roll it into a S-Corp? If you think the business will really will take off, will it just be better to start a S-Corp?

    I would like to know. Anyone here end up changing their LLC to an S-Corp?

  25. You missed a MAJOR part of setting up a business: INSURANCE. Besides whatever specific business related policy you might need, I strongly recommend a personal umbrella policy for any business owner, even the owner of an s-corp. It's only a couple hundred bucks per $1 million of coverage and it protects you against any liability your other policies may not cover.

  26. Awesome! So many people need help with this. We do our best to help out our farmers with info, but many other people don’t have the help. Thanks for getting this out there!

  27. Omgggg thank you very much, it’ll be awesome if you make a series on this subject, there’s a lot of ignorance on this matter and a lot of businesses downfall cause of wrong assistance and planing, love your videos!

  28. Fantastic video! If I may add, anyone in the comments looking to start a business or renegotiate their business structure, find a good CPA and business attorney in your local area who will be familiar with both federal and your state’s filing and tax requirements. They vary across the country, and although services do cost money, an ounce of prevention is worth a pound of cure!

  29. These videos are wonderful. You two are teaching all of the things that millenials should already know in a way that's open and friendly. – We appreciate you both.

Leave a Reply

Your email address will not be published. Required fields are marked *