Forming a separate legal entity is a smart move for developing credibility, lowering your audit risk, and protecting your personal assets.
Most people do not complete the transition and are still operating as a sole proprietorship and part of a new entity.
This creates many problems, as you can imagine, including exposure to your personal assets when you probably thought you were protected.
Below is a checklist that will help you double-check to see if you are on the right track with your business entity.
___1. Form a separate legal entity. The most common choices are either a corporation or an LLC. A corporation may be taxed as a regular corporation or an S corporation. An LLC can be taxed as a disregarded entity, an S or C corporation, or a limited partnership.
All choices have advantages and disadvantages. An LLC has an extra layer of protection called the “charging order” that protects the ownership interest if a partner is sued personally for something unrelated to the operating company.
___2. Obtain a NEW EIN (each separate legal entity requires a new EIN).
___3. Obtain a corporate or LLC record book with the proper bylaws or operating agreement. If an LLC, the operating agreement should match the number of members (owners) and the taxation type. For example,
a two-member LLC taxed as an S corporation has a different operating agreement than a single-member LLC taxed as an S corporation.
___4. Obtain support with completing the corporation or LLC record book with both online support and live office support. When you work with NCP, our staff will schedule a 30-minute record book review with you, and you will have full access to our NCP member’s area.
___5. Open a new bank account in the name of the corporation or LLC (even if you have one with a similar business name as a DBA, you will need a new one under the corporation or LLC and the EIN.
If you have a DBA name now linked to the corporation or LLC (that is key), you may have the new corporation or LLC name and DBA name on the new checking account.
___6. Capitalize the new corporation or LLC. This means you will put money in the new bank account to exchange ownership interest in the corporation or LLC.
This may be $1,000.00 or more of capitalization to get the company started. A husband and wife with a two-member corporation or LLC should each
capitalize the corporation or LLC separately.
___7. Obtain a business debit and credit card. The business debit card will be automatic. The business credit card you will need to apply for.
Ask the banker where they pull your personal credit (which bureau) and
what the minimum your personal credit score has to be.
Ask what your revolving debt level has to be and if you have any major derogatories if those will be an issue before you apply.
___8. Move your merchant account to the name of the corporation or corporation or LLC (if you accept credit cards in your business). Most in network marketing are processing their orders on credit cards to
the main company for processing.
If you accept credit cards directly, make sure you complete a new
merchant application in the corporation or LLC name and point that revenue to the new bank account under the EIN of the corporation or LLC.
___9. Transfer any business assets to the corporation or LLC. This may involve any equipment or tools of your business. Check with your CPA first to determine if any assets have been depreciated or written
off, creating a taxable event moving to the entity.
It may make sense in some cases to leave the business assets in your name. This is a case by case basis that will require more professional help.
___10. Obtain a new business license in the name of the corporation or LLC. You should check on local requirements to determine if you are required to have a business license for a home-based business.
You may live in an area that does not allow home-based businesses, which may force you to hang a business license as an office location (if required).
___11. Establish a 5-year business plan (avoid being classified as a hobby).
___12. Set up the chart of accounts for the new entity with some accounting software.
___13. Use a payroll service when it comes time to start payroll. NCP recommends ADP for payroll nationally, and we have a resource for you.
You may also want to check with your accountant and attorney for legal and tax implications from hiring employees.
___14. After everything is up and running with the new LLC/Corp, close out the bank account to your sole proprietorship and dissolve the DBA name linked to you personally.
A common mistake is to continue operating the sole proprietorship while you are operating the new corporation or LLC.
___15. Update any contracts, agreements, insurance, and licenses in your name personally as to which ones need to be transferred over or redone in the name of the corporation or LLC.
___16. Update your status with your networking company that future commissions be paid to the corporation or LLC under the EIN, not to you personally anymore.
___17. Update all your sources of income with the new Tax ID number of the new entity. Your goal is to avoid receiving unnecessary 1099’s (meaning you want the money, just not to yourself individually anymore) for affiliate or referral fees by the end of next year. Make sure all your affiliates are updated with the new entity information.
___18. Update any insurance to now be in the name of the corporation or LLC. Make sure this does not change your policy or premiums (and coverage).
___19. Get new business cards. Don’t be cheap even if the only difference in the name of your company is “LLC” or “Corporation.”
___20. Check with your attorney or CPA for any steps missed at the state level, involving sales tax, or any other state compliance issues.
___21. A Nevada corporation or LLC, and you live in another state. The corporation or LLC should foreign register to do business in the state where you live and operate your business. If you formed a corporation or LLC in your home state, this step is not necessary.
There is a famous story where a shoe salesperson is looking to expand his territory for shoes. He travels to a country in Africa and sees that no one is wearing shoes.
When he gets back, e reports to his boss. His boss asks, is there an opportunity in Africa to sell shoes?
The salesperson reports back, “Not at all, no one is wearing shoes!”
The next salesperson working for the competitor goes to the same country in April and reports back his sales results.
When asked by his boss to evaluate what he sees, his response is totally different.
He says, “This is the greatest opportunity for us to expand our business because no one is wearing our shoes. What a great market opportunity for us!”
Opportunity is a matter of perspective.
Where is your focus on the opportunity with the financial uncertainty around us?
With unemployment rising and more and more looking for better financial choices, this may be your greatest opportunity since the great depression! No one said it would be easy. ?
If you are committed and focus on adding value and providing solutions, a financial opportunity will come your way quickly.
You may very well be in an industry where your competition is going out of business due to the shrinking market.
That is great for you.
Even if your market shrinks and there are fewer choices, that means you have better odds as you implement ways to improve your product and service for your market place. Search for more ways to add value!
Why this is a Great Opportunity Now:
Keep in mind that JANUARY is the MOST POPULAR MONTH for entity filings throughout all 50 states.
This is the time of the year; people will evaluate their business structure and make the switch from a sole proprietorship to a separate legal entity.
They may be searching online for solutions and pricing. Most are guessing at what type of entity may be best and many times do not have the correct operating agreement or filings with the IRS (which all cause problems down the road). The Easy Process to Refer to NCP: You can simplify the process for them and refer them directly to NCP. The simple way is to just have them call NCP at 1-888-627-7007 and have them speak to our staff. When you advise a business associate to call our company to inquire on how we may help them, just say:
“I came across a great company that has been helping business owners get off to a fast start for the last 13 Years. They help you with everything — from incorporating your business, to building business credit, to keeping the IRS off your back. Plus they have great tools to help grow your business. Check out their powerful new FREE CD, Get Your Business Off to a Fast Start to Profits™, which will cover costly mistakes made when form an LLC or corporation and other value tips to protect your assets. Just go to their website, www.nvinc.com and call them at 1-888-627-7007. Let them know you were referred by me and they will take great care of you!”
When they call we will ask who they were referred by and you will be credited with the sale (and we do all the work).
Many of your friends and businesses associates may be searching right now to incorporate or form an LLC and now you can help them out and be paid for it (as you should be) for directing them to NCP.
You can use your current website, blogs or facebook page to earn cash every
month (or the old fashion way, of talking to people and referring them to NCP -we track every new lead).
Go to www.nvinc.com/GetYourMonthlyCheck and you can go to http://www.nvinc.com/affiliates.htm and register as an affiliate for additional tools. It is NOT necessary to register as an affiliate to get paid. It offers additional tools to help you make more money!
In fact, we would like to send a referral check to you every month making this added “windfall” income a profit center to your business!
Imagine receiving checks for $250, $500 or $1,000 per month! With no cost of goods sold, that’s pure profit (would that help pay for the holidays). About the author:
Scott Letourneau is the founder and CEO of Nevada Corporate Planners, Inc. Over the past 13 years NCP has assisted more than 5,500 business owners form LLCs and corporations to get their business off to a fast start to profits™! Questions? Call NCP at 1-888-627-7007. www.nvinc.com
Nevada Corporate Planners wants you and your company to have the most protection, security and business advantage possible for your new corporation or LLC. Call us at 1-877-515-0505, and let us show you how we can help you. But whether you become our client or not, consider these points in your choice of strategic partners in this all-important decision process:
Seven Criteria the Company You Choose Must Meet
BEFORE You Let Them Form Your
Next Corporation or LLC!
Look for a company that will ask you questions to determine the best entity for your situation—before they quote you a price! Imagine seeing your doctor for a physical. He walks in the room, says hello and goodbye as he hands you a prescription — and never gives you an exam! You might as well have diagnosed yourself by the “dartboard method.”
Look for a company that understands—and will explain to you—multi-state taxation rules. These rules affect the state(s) in which your entity will have to register so you can do business. Beware of companies that tout tax savings in a tax-free state when you live and operate your day-to-day business in another state. States like Nevada do have powerful benefits, but tax savings are not typically one of them unless you live and work in Nevada.
Look for a company that fully discusses your situation with you, so you know you’re making the best decision about which entity will maximize your outcome. Your “exam” should involve many in-depth, tailored questions, rather than a following a “cookie-cutter” approach. What cures someone else is not necessarily what will cure you! Remember, if you’re looking for “easy”… if you’re looking for minimal effort – expect proportional results—or worse.
Look for a company that knows the subtleties. Ask them why 71% of all C-corporations, if audited, would pay 35% tax on all profits earned, along with hefty penalties and interest that might cripple their businesses. Does the company you’re considering know why?
www.nvinc.com Call within 72 hours of downloading this free guide at 1-877-515-0505 and
receive a Bonus GUIDE, a $47 value, The Top 20 Costly Mistakes BEFORE And AFTER Incorporating! and a 30 minute free consultation, a $200 value plus a special one time offer after you call!
Is your business located outside the United States? How would it help your business to secure more U.S. customers or clients? Do you even know why you may be losing revenue in the U.S.?
The key is to develop trust. When your company, whether you are based in the UK, New Zealand or Australia develops trust in the U.S. market you are more likely to bring in a share of revenue. The best way to develop trust is to be a U.S. company.
Meaning, if you have a company in the UK you would also have a company in the U.S. Now the U.S. consumer will see that you actually appear to be bigger than just a U.S. company. The key to this strategy is to properly set up a U.S. company with the proper steps so you or your company does not have IRS or legal issues.
This includes the proper U.S. entity, U.S. bank account, U.S. Merchant Account (which is almost impossible unless you have the steps in order), a U.S. Office Address, a U.S. phone number with staff, mail fowarding, the EIN and ITIN number for you and the company.
There are many online solutions but many cut corners and only give you a piece of the puzzle (like forgetting to have a CPA tell you how to get money out of your U.S. company).
For a full report on how to properly establish a U.S. company call Nevada Corporate Planners, Inc at 1-888-627-7007. You will be sent a complete report on all the steps required.
Are you protecting one of your most valuable assets? Did you realize that if you own domain names, you own virtual real estate free and clear? Yes, when you paid $8 or so to reserve you domain name, you or your company own it free and clear! Who should own your domain names? What is most common? Usually most entrepreneurs own their domain names either through their own name personally or their operating company. Both of those are probably a mistake, especially if your “virtual real estate” has value!
If you owned a free and clear piece of real estate, like a rental property that was worth $500,000, would you own it personally or in your operating business?Never! If you owned it personally you are exposing a very valuable asset for lawsuits! If you had it owned by the business you are unnecessarily exposing your valuable asset to lawsuits that could occur against your business. Regular real estate is a risk asset by itself. But “virtual real estate” like a domain name does not necessarily bring much risk to it. The exception is; if you reserve a domain name and later discover that you may be violating someone’s intellectual property or a claim is made against you.
If your domain names is responsible for 60-90% of your leads to your operating business it may be a very valuable asset. For example, NCP’s website, www.nvinc.com, which we have owned since 1997, is a very valuable asset. It generates about 60% of our leads and is owned by a separate operating company and leased back to Nevada Corporate Planners, Inc.
Many of you may want to consider forming a safe asset holding LLC to own all your domain names and lease them back to your operating company. Typically it would be an LLC taxed as a partnership.
If you are just starting your business and there is no value to your “virtual real estate” other than the price you paid for your domain name, then leaving it your name or the business name may be ok short term. My preference would be to be owned by your operating company as a first step. If that is not the case, you can transfer the ownership to your operating company.
In summary, make sure you properly protect your domain names, especially as they gain value. A separate legal entity may make sense for many of you. For specific questions on your situation, call NCP at 1-888-627-7007!
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