Startups: Your Day 1 REQUIRED TASKS
Legal/admin tasks for the day after you think of a billion-dollar idea
So you decided to start a company!
As someone told me early on in my entrepreneurial career:
You are not a normal person. Very few tread down this path and, regardless of the success of this first idea, you are building the foundation today that will allow you to be successful tomorrow.
My personal additive would be "Rome was not built in a day, and you can count on the same for your company".
Grandiose visions aside, you need to take care of a few key legal/admin/accounting tasks before you start building.
Need I say more?
Step 1: Form you legal entity
I've never been a fan of superfluous information so I'll cut right to the chase and let you look up the specifics if you need them/are interested.
Unless you are taking investor money from Day 1 (unlikely and not recommended) you should register your company as a limited liability company (LLC) with your secretary of state.
The key here is that a formally registered LLC gives you and your business needed legal protection if/when something goes wrong. Once registered, you gain your first layer of protection between your personal assets (savings, home, car) and your business. In other words, if someone sues - you keep the house.
If you do not register as an LLC (or any other legal format) and something goes wrong, you can and likely will lose everything you own.
The total cost of filing your LLC will range from $50-$200 depending on where you live BUT this is a crucial first step.
In North Carolina, you register here.
A few tips & tricks:
- Be sure to include "LLC" at the end of whatever name you choose for your company
- Remember that this LLC name is NOT consumer-facing (the only people who will see it are the IRS, your bank, and the nerds who read legal disclosures) - DO NOT SPEND TOO MUCH TIME WORRYING ABOUT CHOOSING THE LLC NAME.
- You are the "registered agent" if you are registering the LLC is the start that you currently reside
- You are most likely going to use your personal address for your company address at first (very common)
- DO NOT PAY A LAWYER/COMPANY TO DO THIS FOR YOU (it is way too easy, takes 10 minutes, and they will charge you a $200 fee for the effort)
Step 2: Apply for an Employer Identification Number (EIN)
This takes 5 minutes and can be completed here.
You need this to pay taxes & for tax withholding requirements for your employees (including yourself).
Lastly, you will need this to open a bank account (step 4).
This is completely free and really easy to complete BUT you will need to have obtained your LLC filing confirmation first (if you just use your own name, that will not help at all with your business).
Step 3: Draft your Operating Agreement
Skip this step if you are the only owner of your new company.
If you have a co-founder or multiple co-founders, you will need to draft an operating agreement that details the big 3:
What % of the company does each person own?
Who has the final decision making power?
If any of the owners leave, how much are they entitled to keep/take with them?
There are other items you may include in this agreement but I've found these 3 to be the most important for any new company to avoid ruining relationships down the line.
Here are a few templates to use for your first draft.
If big money stakes are involved, you may want to have an attorney view your finished draft (do not ask them to draft it for you, it will cost you thousands more).
Step 4: Open a Business Bank Account
Once you have your LLC filed and EIN, you need to go open a business bank account.
There are many reasons for this.
If customers pay you, they should be able to make the payment to a company and not to you personally
You need to stop commingling business & personal assets IMMEDIATELY (put any money to be used for or income from the business into this account)
You need to build your business credit history (in case you ever need a loan or line of credit)
If you are a digital company (no cash), I recommend mercury.com, azlo.com, or bluevine.com. These digital business banks have low/no minimums & fees and connect well with Quickbooks and payment vendors (stripe/square).
If you are a cash-heavy business, I recommend locating a credit union or community bank in your local area. They will be able to provide better rates than mega-banks and typically waive any minimums or other nonsense fees.
Step 5: Obtain Basic Business Insurance
This is pretty simple and provides another layer of protection against creditors in the event you get sued.
A general business liability coverage policy should be obtained before you start letting customers through the door (or onto your website).
That means if you won't be launching your product/service/business until 6-9 months from now, you should set up the policy to begin in 6-9 months (not right away).
Business owners, Cyber, General Liab, or Contractors insurance all various forms of coverage you may need depending on your business.
In no way am I recommending Progressive but here's some info on policies available.
I do recommend shopping policy costs/rates at 3 or 4 insurance providers before settling (it will likely save you hundreds if not thousands each year).
Step 6: Choose your (Consumer-Facing) Company Name
As I mentioned before, your LLC name does not matter.
What does matter is the name you select that will be consumer-facing (your brand name).
Once you have a name in mind, take a second to confirm that the name is not trademarked here.
If the name you want is not taken, I also recommend taking a quick second to see if there are domain names available (step 7).
If you can secure a .com or .net or .us, you are sitting pretty.
Lastly, my general advice is that you either have a unique name or a very specific name.
A unique name would be something like Amazon (although they have that locked down).
A specific name would be LowPriceMovers (you know right away what they do).
All in all, you can and likely will change your name a few times so do not get too hung up on the name - it is more important to build something than to worry about the name.
Step 7: Purchase a Web Domain
As I mentioned in the prior step, you want to lock down a domain that includes your company name (so your customers can find you).
You can check on domains here.
Most of your customers will Google you to see what you are all about once they hear about your company. You want to ensure that they can find you and that when they do you have a strong first showing (first impressions very much do matter in business).
Domains are cheap enough where I would lock it down quickly - hesitating and losing it can be a painful process.
Step 8: Create a Basic Email Website
I promise you that I do not work for Google (not smart enough) but I recommend you use them to create an email address after you purchase your domain name.
You can do that here.
You will need this email for any customer or vendor correspondence (trust me, everyone will ignore your personal email address
Step 9: Get (Free) Help
There are many resources available to entrepreneurs that include either funding or mentorship.
Both are crucial early on.
My recommendation is that all new founders reach out to:
Small Business Development Center (in your state)
Economic Development Centers
These organizations provide 100% consulting for early-stage ventures and can guide/direct you towards available grants in your local area/state.
I also recommend you search for local incubators and accelerators.
If you are still in school, it is an absolute must that you reach out to your business or entrepreneur center. They typically have grants available or other free resources.