4 Things to Consider When Forming Your Entity Online
By: Ryan L. Leitch – RBE Partner
Efficient and easy access to online services provides many benefits to business owners. For example, it is relatively easy to form a new business entity on the Indiana Secretary of State’s website and obtain an employer identification number (“EIN”) from the Internal Revenue Service (“IRS”). These steps can be completed in as little as thirty to sixty minutes merely by accessing the two appropriate websites, and they may be done without consulting or seeking advice from experienced legal or accounting professionals. Further, once completed, a business owner may open a bank account and begin operating their business. However, additional matters should be considered as part of the formation of the entity online either before or during the beginning of business operations, including the following:
1. During the initial entity formation process online with the Secretary of State website, there is optional information that can be provided, and that which is required and may affect the operation of the business. Consideration should be given to what is included in the initial filing, especially in naming and maintaining the appropriate registered agent to be the designee to receive notifications and service on behalf of the business entity.
2. If a business is going to use or operate under a different name, even if that is only omitting the “LLC” or “Inc.” designations, the business should register and file appropriately to allow the company to have a “d/b/a” (doing business as) name. Failure to properly register a “d/b/a” name could result in a penalty, and it could adversely affect the limited liability protection the entity provides in the first place. Additionally, after forming the entity online, other divisions of the State of Indiana may require the business to obtain certificates or identification numbers for such matters as tax collection, fiduciary obligations, or employee withholding.
3. If a business’s operations involve out-of-state activities, those activities should be reviewed and analyzed to determine whether the new company must take the further step of registering as a foreign entity doing business in the additional state. Certain states (such as the neighboring state of Illinois) can impose substantial monthly penalties for doing business in that state without first registering.
4. During the process of obtaining an EIN from the IRS (typically an easy and free online process at the appropriate website), certain elections can be made when obtaining the EIN or within specified time periods after obtaining the EIN. However, even though those elections affect how the entity will be taxed, they are often not properly or timely made by business owners. Further, they should be made only after obtaining advice from an accounting professional familiar with the business and its anticipated operations.
In addition to the above, several other considerations should be reviewed when starting any business, as outlined and referenced in this article: (The Top 5 Mistakes Made By Start-Up Businesses). While the process of forming a business entity online is convenient, a wise business owner will realize there is often more than meets the eye, and they will retain experienced legal counsel to advise them as to whatever additional steps may be needed.
Author Ryan L. Leitch
Ryan Leitch represents businesses and business owners including in construction, manufacturing, retail, distributors, software and technology, sales and other service industries in a variety of matters, including entity selection and organization, shareholder disputes, mergers and acquisitions, loan transactions, and general contractual matters. Ryan has substantial experience in representing lenders in large, complex creditors’ rights cases. Ryan also represents individuals in estate and succession planning, business succession planning including Wills, Trusts, Power of Attorney and health care designations and other legal matters.
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Disclaimer: Article is made available for educational purposes only and is not intended as legal advice. If you have questions about any matters in this article, please contact the author directly.
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Posted on August 5, 2022 by Ryan L. Leitch