With 2008 fast approaching perhaps you are considering the pursuit of the American Dream to own your own business. But where do you start? Here are some helpful legal tips to consider before you start your Iowa business:
1. Find out the availability of your proposed business name. You can do a quick search on the Iowa Secretary of State Web site to see whether your name is available. If the name is available you may want to reserve the name through the Secretary of State but you are not required to do so before forming your business entity. You may also want to consider whether any company outside Iowa has your business name. You can conduct a free search on the U.S. Patent and Trademark Office or use a paid service to research trademarks nationwide. It is also a good idea to check whether someone has your proposed Internet domain name. An intellectual property attorney could also be very helpful in this process.
2. Pick a Place to Incorporate or Form a Limited Liability Company (LLC). I am sometimes asked whether an Iowa company should incorporate or form an LLC in another state such as Delaware or Nevada. In general, an Iowa small business is probably better off incorporating or forming an LLC here in Iowa. The filing fees are low and the ongoing fees for registering the business in Iowa are among the lowest in the country. (Only $30.00 every two years if you file your biennial report online).
3. Choose the Shareholders and Directors. If you are forming a corporation who will be the shareholders in the company? If it’s an LLC, who are the members? These are the owners of the company. Determine how much capital you will need. Do you have enough capital or access to capital in order to start the business on your own? If not you may need to consider other investors.
In most cases the shareholders of the small business are also the directors. Do you want outside directors? There may be good reasons to have outside directors but think this over carefully before you elect to do so. Electing outside directors may limit your control over the business.
3. Create your Articles of Incorporation or Organization. The articles of incorporation (corp) or organization (LLC) act as a charter to start your new business in Iowa. The filing fee with the Secretary of State is currently $50.00. It is generally a good idea to have an Iowa business lawyer prepare your Articles of Incorporation or Organization and other corporate documents.
4. Prepare corporate bylaws or operating agreement. The bylaws (corp) or operating agreement (LLC) set out the operating standards and procedures the business company will follow.
5.Create meeting minutes, resolutions and agreements. It is a good idea to document the initial meeting minutes of the company including the meetings of the shareholders and directors or the members. At this time, you will elect the officers of the company including the president, vice-president, secretary and treasurer. You will also issue stock (corp) or membership (LLC) certificates at this stage. If you have multiple shareholders or members you will also likely need a buy-sell agreement.
6. Obtain your employer identification number (EIN). Your corporation or LLC will need to obtain an employer identification number from the IRS. This can be done through a convenient online application process.
7. Elect your tax status. There are several different options for how your corporation or LLC could be taxed. Make sure to talk with both your accountant and lawyer about which form of business entity is the most advantageous for your situation.
8. Open a bank account. You will typically need the EIN and a banking resolution in order to do this.
9. Obtain any licenses and permits. You will need to check the federal, state and local regulations to determine whether you need and licenses or permits to operate your business.
10. Follow the corporate formalties of running a business. In Iowa, this includes registering your business every two years with the Secretary of State’s office. You also need to do corporate minutes at least on an annual basis including the election of officers and directors. Sign all documentation using your title as a corporate officer. You will also want to minimize or avoid situations where limited liability is not an absolute.
For more information on setting up an Iowa corporation or LLC please visit my small business formation page.
photo on flickr by MargaretFun.