You did it! Your company is officially legit, which means you’re a boss and one step closer to building your empire.
But, now what? Not to be a total downer, but there are still a few things left to do now that you’ve taken care of the legal stuff.
To help you sort through what’s next, we’ve created a handy checklist. Use this list to keep your information updated and your business recognized as the super fancy official company that it is.
Please bear in mind that, while we’ve made every effort to ensure the following information is accurate and up-to-date, it doesn’t constitute legal or tax advice, nor should it be considered a substitute for legal or tax advice. Seek the guidance of experienced attorneys or tax professionals if you have any questions about your unique organization.
Update your W-9 forms
First up, you should update all W-9 forms that you’ve previously completed for clients.
We’re talking about IRS Form W-9, Request for Taxpayer Identification Number and Certification, which verifies your company’s identity for tax purposes.
If you own an LLC and you don’t complete a W-9, your client is required to withhold 24% of your pay and then send that money to the IRS. This process is called back-up withholding, and it’s generally not required for corporations.
What if you have an S corporation? In that case, you need to fill in box 4 of the form. All you have to do is list your exempt payee code, which will be “5.”
If you form an S corporation or you elect to have your LLC taxed as an S corporation, you’ll also need to obtain an employer identification number (EIN) from the IRS. And, if that’s the case, include the EIN on the form. Otherwise, you can use your Social Security Number.
No matter what, you need to provide your business’s name and address on this form. You should list the name on your LLC’s articles of organization or your corporation’s articles of incorporation.
Side note: The W-9 isn’t filed with the IRS. Your client just keeps it in their files.
Want to learn more about EINs for further clarification? We’ve got you covered. Just check out our Freelancer’s Guide to Federal Tax ID (EIN).
Update your invoices
The next step is changing your invoices, which is super easy to do…and super easy to forget.
Since your clients are now paying your business, rather than you personally, you’ll need to update your business name on all of your invoices so that your business is billing your clients- not you. . .
Change your invoice template in advance so you don’t have to worry about it when it’s time to do your billing.
Open a business bank account
Okay, so far it’s been pretty easy, straightforward stuff. Now is something a bit bigger: opening up a business bank account.
Whether you have an LLC or an S corporation, the business should have its own bank account.
Ugh- can’t I just use my personal checking account like I used to?
Um, no. You shouldn’t use your personal bank account for business, so you need this separate account to keep things organized and ensure that your company will be viewed as a legit business entity by the courts.
All of the money your business earns should be deposited into this bank account, and all of the money that your business spends should be withdrawn from this account.
Let’s say you really don’t want to bother with opening a business bank account. What’s the worst that could happen?
Well, you could lose your limited liability protection, which you get when you form an LLC or corporation. Losing your liability protection is a big deal because the benefits of doing business as an LLC or a corporation will be lost. Opening a separate bank account is way less horrible than having your personal assets seized if you lose your liability protection. So just do it.
Plus, opening up an account isn’t that hard. Your bank will ask you to provide a copy of your filed articles of organization or incorporation, along with your EIN if you’ve formed a corporation.
More information on this topic can be found in A Comprehensive Guide to Banking for New Business Owners.
Update your payment processing information
Next, you need to let your payment processors know about your new business bank account. This ensures that you get paid.
For example, if your clients pay you through PayPal, you’ll update your PayPal payment information. If you’ve been using a personal PayPal account, or similar account, you’ll need to start a new account in your business’s name.
Capitalize your LLC or corporation
When we say “capitalize,” we’re talking about funding your business.
To be recognized as a legitimate entity that’s separate from you personally, your LLC or corporation can’t be an empty shell. This means you need to make an initial investment in your business—technically called a capital contribution.
You can contribute more than just money. For example, you can contribute loans, property, or services as well.
Typically, a one-owner LLC or S corp will be capitalized with the owner providing cash and perhaps some equipment to get the business going. To do this, just write a check to your LLC or corporation, and deposit the funds in your business bank account.
Wait, how much should I contribute?
The amount of your initial capital contribution depends on the nature of your business; it just needs to be enough to meet your initial expenses.
Going forward, it’s important to always keep enough cash in your business to meet your reasonable, ongoing expenses. So, if you’re running a one-person operation and you don’t have many expenses, you may not need to contribute very much.
Keep in mind that, if you form a corporation, your corporation needs to issue stock to you in return for the money or other property you contribute. And you can issue as many shares of stock as you want. So, for example, you could contribute $1,000 in return for 1,000 shares of stock.
What if you form an LLC? In that case, you won’t have stock. Rather, you’ll have a membership interest in the LLC. But, LLCs don’t issue membership certificates.
Instead, your LLC operating agreement should show the amount of your membership interest. If you have a single-member LLC, your interest would be 100%.
Update contracts with existing clients
Do you have ongoing contracts with clients that you started while you were a sole proprietor? Then you should definitely update them.
All of your contracts should be between your client and your LLC or corporation, not between your client and you personally. It’s confusing to have some client contracts in your own name while having other contracts in your business’s name. Keep them organized and clear by only using your company name from now on.
There are two ways that you can go about doing this:
First option: you and the client can terminate the old contract and sign a new one in your business’s name. The great thing about this approach is that your client knows what’s going on.
As an alternative: you might be able to assign the contract to your LLC or corporation—meaning, your business legally agrees to take over the work required by the contract. Unless a contract forbids it, it ordinarily can be assigned without a client’s consent. If you want to do this, you simply draft and sign an assignment agreement.
Update your insurance
Already have insurance coverage for your business? Then you need to have it transferred to your business name.
Don’t have insurance for your business? You should think about getting some! What type of insurance you’ll need, as well as how much coverage depends on your business and your income.
Pay annual LLC/corporation taxes
Depending on your state, you might have to pay a special annual LLC or corporation taxes.
Take California for example. There, LLCs must pay a minimum annual $800 tax to the California Franchise Tax Board, and you must pay more if your LLC’s income is over $250,000. The tax is due April 15.
Also, if you form a corporation, you’ll have to pay an $800 minimum tax to the Franchise Tax Board, and S corporations in California must pay a 1.5% tax on all of their net income if this amount exceeds the $800 minimum tax.
Pro tip: Paying annual taxes for your business is the last thing you want to think about and it’s easy to forget when the fees are due. To help make sure you always pay on time and the right amount, you can enlist the help of the experts at Hyke. Let them handle the important details while you focus on running your day-to-day operations.
File a fictitious business name statement
You aren’t required to operate your LLC or corporation under the legal name listed in your articles of organization or incorporation, so you can use a completely different name if you want.
Many businesses do this because they don’t think that their legal name is good for marketing or other business purposes.
If you want to use a made-up business name—which is referred to as an assumed name, fictitious name, or dba (doing business as)—you must file a document in the county where your business’s main office is located.
In California and many other states, this form is called a fictitious business name application. Filing this form allows you to operate under a name other than your LLC’s or corporation’s legal name.
Check your county’s fictitious name records first to be absolutely sure that the name you want to use isn’t already taken by another business.
Then, file the right form and pay the required fee. If you need additional information in this area, check your county’s website, and you can also read through this article.
Set up your S corporation employee payroll
If you form an S corporation or you elect to have your LLC taxed as an S corp, you’ll ordinarily work as its employee. This means you need to set up employee payroll for yourself.
It’s up to you to decide how much of a salary you’ll pay yourself. Keep in mind that, if you pay yourself too little, you might end up facing problems with the IRS. Really take your time to figure out the appropriate amount of compensation that you deserve for the work that you do.
To learn more, see our Freelancer’s Guide to Paying Yourself a Salary From an S Corporation.
Also remember that your S corporation must treat you much like any other employee, which means it’ll need to withhold income taxes and employee payroll taxes (Social Security and Medicare) from your salary and then pay that money to the IRS. And, as your employer, your S corp must pay half of your payroll tax itself.
Depending on your state, your S corporation might have to pay unemployment taxes, federal and state disability taxes, and workers’ compensation insurance premiums. In many states, a one-owner S corp can opt-out of most of these requirements (phew!), but your corporation will have to pay federal unemployment tax of up to $420 per year.
Here’s the thing: employee payroll is complicated. You need to be sure that the right amount of tax is being paid to the IRS throughout the year. Plus, depending on how much you’re paid, your business might have to make quarterly payroll tax and income tax deposits, and file quarterly employment tax returns.
Oh and let’s not forget about filing your annual federal unemployment tax return. It’s a lot!
So it’s no wonder that most small business owners hire payroll tax services or accountants to handle employee payroll for them.
These days, you don’t have to restrict yourself to using local services either. Instead, you can opt for online-based payroll tax services, like Gusto —and when you sign up with Hyke, your account includes payroll via Gusto. It’s one less major thing you have to worry about!
Hyke can help you knock everything off your to-do list
After you form an LLC or S corp, there’s an overwhelming amount of stuff that needs to get done before you can enjoy that celebratory drink. With Hyke’s help you can get it all done and still make it to happy hour on time.
We’ll help you form your LLC or S corporation, and be there to walk you through everything from setting up your business bank account, to filing taxes throughout the year. Bottom line: Hyke’s got your back when it comes to running your business.
Stephen Fishman writes for Hyke and is an attorney and author who writes useful and recognized guides on taxes and business law for freelancers. He is the author of over 20 books and hundreds of articles.