If there's one thing I've learned in my past business ventures, it's that structure and legal formation of the business is important, but it can't be the majority of the work you're doing at the start. An overall idea for what your business should be and concentrating on the steps to make the idea into a reality is where you should spend most of your time. With that said, this article will be about some of the important and necessary steps toward setting up a legal structure, tax IDs, bank accounts, etc. Don't be fooled, though, this isn't where the majority of your time should be spent, but it's crucial if you're going to build a business.

Legal Entity (Inc, LLC, Partnership, or what!?)

Avery and I decided a Limited Liability Company (LLC) would work well for structuring our business in a way to limit our legal liability and to create a simple entity which could be used for getting an Employer Identification Number (EIN) from the IRS, a Sales Tax License, creating a bank account, and more.

In Michigan, you can usually form an LLC for $50 and about a page or two of text describing the name of the company and it's address. It's really not that complicated and it just requires you to file a single form every year (plus $25) to let the government know if you're still doing business and then forms for all partners (Schedule K-1, if I remember correctly) to include on their personal taxes each year. This is less paperwork than a corporation and doesn't require as much documentation, but it protects you just as well personally if your business were to go bankrupt or fall victim to a reckless lawsuit. I'd recommend staying away from pure partnerships, sole proprietorships, or DBAs (Doing Business As) unless they are between two entities that all ready have protected their liability, e.g. a partnership between two LLCs or a Corporation using a DBA name for different ventures.

IDs, Banks, Licenses

An EIN is like a social security number for your business. It's what the IRS uses to track you and while that doesn't sound attractive, it'll be required by many other companies you work with. You can apply for it online (even on a Saturday, like I did) and have the number within minutes. You'll need an EIN it for your next step...

Setting up a bank account is of course important so your company has a place to deposit and withdraw money. We choose an entry level business checking account at National City bank since they had no fees or minimums other than an initial $50 deposit to start the account. They also provide a check-card, points for the money you spend, and some other stuff. I'll know more when I go back in soon to finish setting up the account. I applied online and got accepted within 2 days, but when I went in to show them our paperwork (LLC Articles of Organization) they said they needed a copy with the state's approval of the LLC (which hasn't been sent back to me yet). Brandon, at the bank, was helpful and tried to even find the digital scan of it on the Michigan.gov website, but the status is marked as "Filing Pending" and thus we are not yet a legal company! I probably should have paid for rush servicing of the paperwork or waiting to file all other paperwork until the state confirmed the filing of our LLC.

Since Commercial Progression's first ventures will be into online retail and eCommerce we found it's also important to obtain a Sales Tax License from the State of Michigan. This allows us to collect sales tax on products we sell to people in Michigan and I'm finding that wholesalers we will work with many times require a copy of your Sales Tax License to ensure they are dealing with a legitimate and legal business.

Next Steps

I trust my brother more than anyone else in the world, but it's still important for our business to have an Operating Agreement in place to make it clear how the business will run, how money is handled, and even how the company would be dissolved (if it were to happen). Some states require an operating agreement be filed, but that's not the case in Michigan. However, from what I've read, an Operating Agreement can be crucial if not only for the reason that in a court's eyes it helps prove and establish the company's limited liability for it's partners! This was something I didn't know or realize in previous business ventures, and it would suck have wasted time with all this legal stuff just to end up in the poor house.

We also need to finish putting together a budget, find a bookkeeper or a way to track money, find an accountant, and eventually we may even want a lawyer to help us as our business grows.

More to come!