Company Formation: A Complete Guide for New Founders

There’s a saying among seasoned business owners who have started and exited multiple times:

First-time entrepreneurs believe that a structure is needed for their opportunity and business. Serial entrepreneurs know that business and opportunity fits the structure.

In other words, the tax structure of your business isn’t an afterthought; in some cases, it can be the difference between profitability and bankruptcy.

To reference a real-world case study, billionaire cable executive John Malone didn’t build a business in spite of the tax obligations of the cable business; he selected the business structure because of the tax and cashflow mechanics of the cable business.

If you want to learn more about the games people play with business structure, just Google the term “EBITDA…”

Luckily, you don’t have to be a corporate structure genius to take advantage of the right business structure. You just have to be aware of the 10 key considerations of structuring a business, and select products and services accordingly.

In this article, I’ll walk you through the whole thing so you can avoid costly business structure issues in the future.

Business Structure

LLCs offer flexibility and simpler management, while corporations are great for raising capital and can provide tax benefits.

The key point to understand is that your structure primarily matters for tax purposes. In some cases, companies even opt for pseudo nonprofit status — such as in the case of the CMS Ghost — to either avoid the incentive to sell to private equity, or to avoid taxes altogether for long-hold lifestyle businesses.

State of Formation

Pick the state carefully. Delaware, Nevada, and Wyoming are popular for their business-friendly laws. I’ve written a full guide to selecting the right state linked below. But in short:

• Use your state of residence 99% of the time.
• Use Delaware if you’re a venture-scale business seeking funding.
• Using Wyoming if you have unusual privacy needs, such as when purchasing real estate.
• The best state for non-resident LLCs is almost always Deleware or Wyoming.

Name of the Business

Your business name must be unique and comply with state regulations. You must also avoid copyright and trademark; search the official US database here, but consider legal services to make sure you aren’t setting yourself up for issues in the future.

As an example, you might not realize that having the term “Lego” in your domain name can cause issues… I’ve got bad news about the name of your future legal fees.

The same goes for generic terms you might not even be concerned about. I personally know an entrepreneur in the beverage space who had to change their business name due to similarity to a brand of bottom-shelf wine.

Registered Agent

Appoint a registered agent to handle legal documents. They must have a physical address in your state of formation. There’s not much to say about this other than to be aware of the fees you can expect to pay annually to providers like Incfile (Bizee) and Zenbusiness.

Articles of Organization/Incorporation

File the necessary documents with the state to legally establish your LLC or corporation.

Operating Agreement/Bylaws

These documents outline the management rules of your business. They’re not always required but are highly recommended.

Tax Considerations

Understand your tax obligations. LLCs are typically pass-through entities, while corporations can choose between C and S corporation tax statuses.

Licenses and Permits

Make sure you have all the necessary licenses and permits to operate legally.

Compliance Requirements

Keep up with ongoing requirements like annual reports and franchise taxes to avoid penalties.

Liability and Asset Protection

Forming an LLC or corporation can protect your personal assets, but make sure to keep personal and business finances separate.

Before diving in, it’s wise to consult with legal and financial professionals to navigate the complexities of starting your business. As always, remember that I’m not a legal or tax advisor and that information on this website is for general information purposes (entertainment) only.

Company Formation Guides & Resources

• Wyoming vs. Delaware LLC: Best for International Founders
• Delaware LLC vs. Delaware C-Corp for Non-Residents
• Wyoming LLC Pros and Cons for Non-Residents in 2023
• Doola Business Formation Review: 2023 Vendor Analysis
• Best US States To Form an LLC for Non-Citizens
• Best Places to Incorporate a SaaS Business

Formation service comparisons

• Doola vs ZenBusiness
• Doola vs Stripe Atlas
• Doola vs LegalZoom
• Doola vs Firstbase
• ZenBusiness vs Northwest
• ZenBusiness vs Incfile
• ZenBusiness vs CorpNet
• Stripe Atlas vs Clerky
• Northwest vs CorpNet
• LegalZoom vs ZenBusiness
• LegalZoom vs Stripe Atlas
• LegalZoom vs Northwest
• LegalZoom vs Incfile
• LegalZoom vs Firstbase
• LegalZoom vs Corpnet
• LegalZoom vs Clerky
• Incfile vs Northwest
• Incfile vs CorpNet
• Firstbase vs Stripe Atlas
• Clerky vs Firstbase