Hello Women on Business community!! I am so excited to be a contributing writer to this page. I can’t wait to connect with you all, and I hope to provide value and helpful information over the coming weeks and months!
One of the most frequent questions I am asked about starting a business is how to create a business entity, and which business structure to choose from – an LLC (limited liability company), a corporation, or a sole proprietorship. (There are other options as well, but these are far and above the most popular, and great options for getting set up.)
Most online businesses in the U.S. set themselves up as either an LLC (limited liability company) or Sole Proprietorship. (You can find out more information on the process of setting these up by Googling your state + LLC formation – every state is a bit different).
Limited Liability Company (LLC)
The main benefit of an LLC is that your business will be a separate entity from you personally, meaning your money and other assets are usually completely separate from the company itself and are not reachable by someone who, say, attempts to take legal action against your company. This places your business in a completely separate bucket away from your personal finance and assets, which is a huge plus.
You can give your LLC whatever name you’d like – for me, I could set up an LLC as Westerfeld Media, LLC, or something totally separate from my name, such as Blue Clouds, LLC. The name does not so much matter, as long as it is something you like AND something that is not already taken by another company! (To make sure your business entity name is not already taken, you can search the Secretary of State website for your state, and conduct a business entity search.)
The only perceived “negative” or down side to this business entity are the start-up costs, as compared to a Sole Proprietorship. An LLC is cheaper to set up than a corporation, but more expensive than a sole proprietorship. In California, for example, an LLC carries with it an annual fee of $800 for taxes as well as some additional (smaller) start up fees. It will also take a bit of time to ensure you’re filling out the right forms, etc., but it is much easier than a corporation. I would suggest having a local in-state attorney review prior to your filing if you are unsure or have questions.
Sole Proprietorship
A Sole Proprietorship is “easier” to set up than an LLC in that you simply need to start doing business in order operate as a sole proprietor. If you are planning to call your business anything other than your exact name (e.g., if I were to call my business “Westerfeld Consulting” instead of purely “Christy Westerfeld”), you will need to register and file a “Doing Business As” or “DBA.”
As you would with an LLC, your first step would be to check the Secretary of State website in your state to confirm no one else is already using the name you’d like to choose. Once you have confirmed this, you will then file a Fictitious Name Statement with the county where you live. In Orange County, CA, for example, this information is located on the County Clerk’s website with a link to an application as well as all further instructions.
Once you have submitted your application and applicable filing fee (it varies by county, just follow the instructions on the county clerk website), you will need to publish your Fictitious Business Name Statement information weekly for four weeks with a newspaper in the county where you filed. You can use your DBA once you have submitted the application and do not need to wait the extra time – this is just to fulfill notice requirements.
The only additional step is to make sure you renew your statement every five years.
Corporation
Setting up as a corporation is a bit more time consuming and expensive. Unless you are a large company planning to issue stock or seek out investors, most solo online entrepreneurs elect to avoid this route and go the LLC or Sole Proprietorship way — at least in the beginning. If this is the route you decide to take, the beginning of your setup is the same as all other entities: make sure you check your Secretary of State website to confirm your business entity is not already being used!
Once this is complete, you will complete and file your Articles of Incorporation and Statement of Information with your Secretary of State. At this point, you will want to check with your state to ensure you are in compliance with any other regulations that are required. In California, for example, you also will identify your corporation’s designated agent, develop bylaws, name directors, hold your first annual board of director’s meeting, and have the option to issue your first stock.
In addition to the paperwork, you will also want to consult with a tax attorney or CPA to confirm how you will be filing taxes (S-Corp, C-Corp, etc.) and ensure you are compliant with all tax regulations and requirements right out of the gate! The last thing you want is to find out you owe a large amount of money to the IRS or that you skipped a step along the way.
Setting up your business entity is an important and exciting first step in making your business a reality! Please note, this is just information, not legal advice 😊
Christy Westerfeld
Christy Westerfeld is an attorney and online entrepreneur, who specializes in helping female online entrepreneurs ensure their websites and businesses are legally protected. From setting up a business entity and getting client agreements in place to ensuring a website complies with privacy laws, Christy can help new business owners get the information they need to protect their intellectual property, keep their website compliant, limit liability on content posted, and ensure clients are signing complete agreements. When she isn’t working, Christy enjoys spending time with her husband, trail running around Orange County, and wine tasting in Temecula, CA.
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