New Businesses: How To Get Legal, Get Established, and Get Started

We get dozens of inquiries every day from potential entrepreneurs who want to join our network, but don’t quite meet our minimum requirements yet. While we are open to small businesses in almost every stage of business, we do require that the business has been established as a legal entity. The main reason for this is because we’re used as an authority by event coordinators to offer valid, legal vendors, making their job of jurying significantly easier; we do the vetting so the coordinators and organizers don’t have to.

(If you’re a creative entrepreneur (a maker), I suggest you read this post and watch the video associated with it before moving on to the next steps.)

So, if you’re JUST starting out, here are some of the steps you need to take.

  1. Establish your business as a legal entity. You have several choices when deciding on how to establish your business. You can go the route of Sole Proprietor (which makes up MOST small businesses in the United States), an LLC (Limited Liability Corporation), Partnership, and Corporation. As a beginner, you’re probably not looking to become a Corporation, but let’s look at the differences:
    1. Sole Proprietor – There is no difference between the one owner of the business and the business itself. All federal tax reporting can go onto a personal income tax report. This makes money movement very easy between “company” and “personal.” This type of business is super-easy to set-up with minimal paperwork; you don’t even need to establish a business name or EIN, you can use your own name and social security number. The downside – you, as the individual, are not protected against any liability of your company.
    2. LLC – Limited Liability Corporations are like a blend of sole proprietor and corporation. While you do not have shareholders, you have members. In an LLC, you generally have one main operating member, but there may be more members. Instead of being taxed separately, LLC profits and losses can be reported on an individual tax return without the liability of the company falling onto the owner. The downside – this is a little more expensive to establish than a sole proprietorship, and depending on the county you are establishing your business in, you may have to take an ad out in the newspaper for 30 days before you’re allowed to establish as a business.
    3. Partnership – This business entity works if you want to establish more than one business owner. With the help of a lawyer, you can create the exact lines of responsibility and distribution of income. You will have to file a DBA (Doing Business As), and I would recommend a lawyer to stipulate the precision of the partnership, but this is a great choice if you need and/or want a distribution of leadership within your business.
    4. Corporation – A corporation is considered a public entity and often includes shareholders. The upside of a corporation is the ability to have multiple investors within the company, especially if listed as a public stock entity. The downside is that you will take a tax hit on a personal level and on the corporate level. For newbies, I sincerely don’t recommend this level.
      Source: Volusion Blog, Business Types
  2. Apply for your DBA within your County-of-Business. Even as a sole proprietor, I would suggest choosing a business name and acquiring your “Doing Business As.” The cost of acquiring a DBA varies greatly depending on the county you live in. To obtain your DBA, you will have to go to your County Clerk’s Office and fill out specific paperwork. This can all happen within one day, and they often include free notary (which is required for the process) on premises. If you don’t have access to your local County Clerk, you can use a legal service like Legal Zoom; they make the process very easy, but you will be paying extra for the service and usually takes a much longer time.
  3. Acquire an EIN (Employee Identification Number). This IRS (Internal Revenue Service) has made these a very easy process that you can complete right online. Simply visit their website (after you have completed the above steps), and apply. An EIN allows you to be identified separately from your social security number – which is necessary if you’re an LLC, Partnership, or Corporation. I recommend this for sole proprietors as well, so you do not have to use your social security number on official business documentation. PLUS, if you want to open a business bank account or establish merchant accounts, you will need an EIN.
  4. Apply for a Business Bank Account. Even if you’re a sole proprietor, it’s a great idea to keep your business finances separate from your personal finances. This prevents your state from looking up your personal finances for establishing sales tax. This also gives you the opportunity to obtain merchant-level services, such as accepting credit cards and using business checks. It’s a good idea to keep things separate, especially during tax time, to maintain orderly records. Mind you, if you’re an LLC, Partnership, or Corporation, a separate business bank account is not even an option. I personally recommend Santander Bank (no affiliate referral here, just a personal preference); they make setting up for small and micro businesses incredibly easy and they treat you with grace, no matter what stage you’re in.
  5. Establish a Sales Tax ID Number. This depends on your state, but it is imperative that you establish a sales tax ID number, even if what you’re selling is not generally taxed. You can do this fairly easily on most state websites. In New York State, they offer a check-list on how to obtain your Sales Tax ID Number. Be smart and mindful – if you only plan on collecting cash to “be off the books,” you are putting yourself and your business at great risk for penalties, fees, fines, and even imprisonment for tax evasion and tax fraud. Along with it not being worth the risk, and unethical, you’re undermining all the hard work of fellow small business owners who are doing the right thing – get your license. Once you have your license, you will be able to collect taxes on sales and remit taxes to the state. If you are in the business of selling items that are untaxed (for example, clothing under $110 in New York City), then you will simply file quarterly with nothing to report – easy. As a bonus, states often ingratiate business owners by paying their taxes on time by offering them a 5% refund on the taxes – so, essentially, you’ll collect tax on items and make an extra 5%. **(Please bear in mind, I am basing this information on New York State, tax rules vary by state.)

Once you have all of this documentation, you’re in business!  It may seem intimidating at first, but when I opened my first business, Bath Body Candle Moments, I was able to establish all of this paperwork within 5 days – really.  It’s not nearly as daunting as it seems; just take each step one at a time and ask questions. A fantastic resource is your local Small Business Development Center, who offers this help for free!

If you’re in New York City and would like more personalized assistance, feel free to book a consultation with me.

Kristen Fusaro-PizzoPresident

Published by Scents the Moment

Scents the Moment handcrafts artisan, vegan, and cruelty-free skincare, bath products, and soy candles. We believe in natural and sustainable ingredients with transparent labeling. We are certified cruelty-free by Leaping Bunny and PETA, and we are dedicated to animals; a portion of all sales are donated to Staten Island Hope Animal Rescue.

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