5 Simple Steps to Start Your Own Business
In this post, I'll guide you through the process of forming an LLC, obtaining an EIN, opening a business account, and setting up a Shopify store for your e-commerce business using an SSN or an ITIN.
I highly recommend that you first decide on a niche or at least the name of your business structure, which doesn’t have to be the name of your business with a public name like a store.
Table of Contents:
Forming the LLC
Obtaining the EIN
Opening a Business Bank Account
Getting a Business License
Setting up your E-commerce platform
Forming the LLC
What is an LLC in the first place? An LLC, short for Limited Liability Company, is a legal business structure that blends the features of a corporation and a partnership or sole proprietorship (single member). Similar to a corporation, an LLC is recognized as a distinct legal entity from its owners, referred to as "members." This separation offers limited liability, shielding members' personal assets from business debts and legal liabilities, a crucial benefit.
Also, the LLC typically follows pass-through taxation, where profits and losses flow through to the members' personal tax returns, sidestepping double taxation common in corporations and allowing for convenient income and expense declaration in tax software like TurboTax. These structures vary in terms of liability, taxation, and regulatory requirements. Here are some common ones:
Sole Proprietorship: Owned and operated by one person. The owner is personally responsible for all business debts.
Partnership: Owned by two or more people who share responsibilities, profits, and debts.
Corporation: Separate legal entity from its owners (shareholders) with limited liability.
C Corporation (C Corp): Subject to double taxation; taxed on profits and shareholders taxed on dividends. S
Corporation (S Corp): Avoids double taxation by passing income to shareholders for taxation. Limited Liability
Company (LLC): Blends features of partnerships and corporations, offering limited liability with flexible taxation options.
Nonprofit Corporation: Organized for charitable, educational, religious, or scientific purposes, generally tax-exempt
Now that we have a better idea of what an LLC and other business structures are, we can proceed to forming one. I chose the LLC structure as a single member because I won’t have partners or employees. Understanding the differences between business structures was crucial for grasping the tax implications for my business and investments. My learning curve on business structures took approximately 2 weeks for the LLC formation.
I used a Registered Agent for assistance and services which I highly recommend for peace of mind and convenience. But first, let’s break down what an LLC is, why you need it for your business, and how to obtain it.
Here are the benefits I learned that made me decide on the LLC structure.
It provides limited personal liability, safeguarding your personal assets like your home and savings from business debts and legal claims.
Having "LLC" in your business name can enhance credibility, projecting a more established and professional image.
An LLC offers tax flexibility, allowing you to choose how the business is taxed, whether as a sole proprietorship, partnership, S corporation, or C corporation, depending on your needs.
There's flexibility in management with fewer formal requirements for meetings and record-keeping compared to a corporation.
Forming an LLC is relatively simple and cost-effective, making it an accessible option for business owners seeking legal protection and structure. Anyone with an SSN or an ITIN can form one.
How to form an LLC
Forming an LLC involves several steps, but it's a straightforward process. Here's a 6 steps quick guide:
1. Choose a Name: Pick a unique name for your LLC that complies with your state's naming rules, usually including "LLC" or "Limited Liability Company" in the name. This little step was perhaps the most difficult of them all. It’s hard to choose a name if you don’t know what products you will be selling or services.
2. Check Availability: Make sure your chosen name is available by searching your state's business entity database. You may also want to check for available domain names.
3. Choose a Registered Agent: Designate a registered agent who will receive legal documents on behalf of your LLC. This can be an individual or a professional service. You can google a Registered Agent. I opted for Northwest Registered Agent Northwest Registered Agent because they have good reviews.
4. File Articles of Organization: Prepare and file the Articles of Organization with your state's Secretary of State office. This document typically includes basic information about your LLC, such as its name, address, purpose, and the names of its members.
5. Create an Operating Agreement: While not always required by law, it's highly recommended to create an operating agreement. This document outlines the ownership and management structure of the LLC, as well as the rights and responsibilities of its members. Tip: There are free Operating Agreements on Google or you can get one through your Registered Agent for a fee.
6. Comply with Ongoing Requirements: Stay compliant with your state's ongoing requirements for LLCs, which may include annual filings, tax payments, and other obligations.
For peace of mind (unless you’re a tax expert) consider consulting with legal and financial professionals throughout the process to ensure compliance with all legal requirements and to address any specific needs or concerns
2. Obtain an EIN with the IRS for tax purposes:
Wait, what is an EIN? The EIN (Employer Identification Number) is a Tax Identification number for your business used for tax purposes (no kidding?) and it’s required to open a business bank account. You can do it for free by visiting the IRS website to apply for the EIN. It’s a simple process that takes less than 10 minutes or you can do it through your registered agent for around $50. Anyone can do it… really. So save those $50 bucks cause will need them further going
3. Opening a Business Bank Account:
With the LLC and EIN, the next step is to open a business bank account to facilitate transactions with your suppliers and customers. It’s an easy process with plenty of options from neo-banks and regular banks. If you’re bootstrapping like me, look for a bank with no monthly fees, or a neo-bank if you won’t handle cash. All of them are easy to obtain with an SSN, but if you instead have an ITIN, it will be more challenging because the majority of neo-banks don’t take ITINs. The best option for ITIN holders is a local Credit Union.
But hey, can’t I just use my personal bank account? My answer to that question is But hey, how serious about your business are you?. With the LLC and the EIN there’s no reason for not having a business account unless you want to mix your personal expenses with your business expenses, which is a terrible idea for tax reasons and bookkeeping. Having the required documents will make the process smooth.
What is the right bank account for my business? Well, if your business will be online then I would go for a neo-bank or a bank without fees. If my business will handle cash with suppliers and customers, then probably a brick-and-mortar bank is a better idea since they have physical branches. If you’re reading this blog, you’re probably more interested in having a business online, if you don’t have one already.
Opening the bank by itself is the easiest part of the process, but the learning curve is where the challenge is, especially if you don’t have a background in business or accounting like me. You will have to understand the differences between neo-banks and traditional banks. Here’s a list of the things you have to consider when shopping around for a business account for your business:
Online Banking Services: Since your business operates online, it's essential to choose a bank that offers robust online banking services. This includes features such as online account access, mobile banking apps, remote check deposits, and the ability to transfer funds electronically.
Transaction Fees: Compare the transaction fees charged by different banks for services such as wire transfers, ACH transfers, and foreign currency transactions. Look for a bank that offers competitive rates and transparent fee structures.
Account Types: Consider the types of accounts offered by the bank and whether they meet the needs of your online business. This may include checking accounts, savings accounts, merchant accounts, and business credit cards.
Integration with Payment Processors: If your online business accepts payments through third-party payment processors (e.g., PayPal, Stripe), ensure that the bank integrates seamlessly with these platforms. This can streamline your payment processes and help you manage your cash flow more effectively.
Customer Support: Evaluate the quality of customer support provided by the bank, especially for online banking services. Look for a bank that offers responsive customer support through multiple channels, such as phone, email, and live chat.
Security Measures: Security is paramount when it comes to online banking. Choose a bank that employs robust security measures to protect your business and customer data, such as encryption, multi-factor authentication, and fraud detection systems.
Business Loans and Financing: If your online business may require financing in the future, consider whether the bank offers business loans, lines of credit, or other financing options that align with your needs.
Reputation and Stability: Research the reputation and stability of the bank before making a decision. Look for a bank with a solid track record, strong financial standing, and positive reviews from other business customers.
Scalability: As your online business grows, your banking needs may change. Choose a bank that can accommodate your business's growth and scalability, offering services and support that can adapt to your evolving needs.
Regulatory Compliance: Ensure that the bank complies with all relevant banking regulations and industry standards. This is particularly important for businesses operating in highly regulated industries such as finance, healthcare, or e-commerce.
4. Getting a Business License:
A Business Licence is a legal document issued by a government authority that permits an individual or company to conduct business activities within a specific jurisdiction. It's essentially a way for local governments to regulate and track businesses operating within their area and it’s required for online retailers to ensure legal compliance, facilitate taxation, protect consumers, adhere to zoning regulations, and establish credibility. It's a way for governments to regulate business activities and ensure that they are conducted responsibly and ethically.
Some states have different specific regulations for their business license and they all have different requirements depending of the industry and if it’s an online or offline business.
My business model is Dropshipping so I will be selling goods. After deciding the niche, products and name of the business, I headed to the Washington State Department of Revenue. Creating an account is necessary and, while the process is fairly straightforward, there can be a lot of information to review, making it take some time. My business license cost $179.00 and it took around 10 days to get my application approved. Google your state’s Department of Revenue to apply for your business license and see the requirements for your industry or niche.
If your business license application is accepted, you’ll receive a Unified Business Identifier (UBI). A UBI is a unique identification number assigned to a business entity by a government agency, used for tracking and identifying businesses for taxation, licensing, and regulatory compliance.
5. Setting Up Shopify Store:
Wow, good job getting all the way here! Now that you have your business bank account, you have some options to start building your business. By the way, I left the Setting up Shopify Store process at the end because Shopify will require you to provide all your business information. You will have to enter your LLC information, EIN, Domain name, and bank account information.
This blog focuses on e-commerce, and so I started using Shopify. You can select an e-commerce platform of your choice such as WooCommerce , Magento, BigCommerce, Wix, and Squarespace. I chose Shopify because I did my research and it fits my business ideas, so we’ll use Shopify as an example of an e-commerce platform.
Here are the Shopify pricing plans. Shopify does not sponsor me in any way.
Start for free, then enjoy your first month for $1
Shopify offers a 14-day free trial, but you won’t be able to go live or make it public unless you pay for one of their plans, and you don’t need to enter your business information during the trial period. Once you have entered all your business information and paid for a plan, you can start working on web design, content, copywriting, product sourcing, etc. It’s like setting a physical store with its design and functionalities.
And that’s basically what you need to start an online store. The rest is about getting the right domain for your business and working on store integrations and subscriptions. Also, it’s important to mention learning and checking SEO on your website periodically. Learn about Keywords.
-Luna
Upcoming posts:
Regular banks, neo-banks, and business accounts
What is Know Your Customer (KYC)?
Profit First book review
