The first set in becoming a business entity is to visit your states Secretary of States website and search for "Starting a Business". In Louisiana it will take you to Geauxbiz, here you can submit forms to register your business a Corporation, S-Corp, L.L.C., or Sole Proprietorship. You might be asking what's the difference between the four types of entities, here's a quick description. A corporation is a business entity that is legally separated from its owner so that the personal liability is minimized. Corporations are allowed to issue shares of easily transferable stock in order to fund its business ventures. One of the biggest benefits and drawbacks of Corporation (depending on the circumstance) is taxation. Because of high corporate tax rates, most small businesses shy away from this option. An S-Corp has all of the benefits of a corporation but S-Corps don't pay taxes. Rather they issue dividends to their shareholders and the shareholder is responsible for reporting the taxes as well as their individual taxes. A Limited Liability Corporation or L.L.C. is one of the most commonly used entities for small businesses. LLCs are less formal than corporations and have a lot more flexibility. What appeals to most companies about LLCs is the fact that the owners are neither partners nor shareholders but they are considered as company members. The limited liability status protects members for being accountable for company debt. Also LLC's utilize Flow-through taxation, this means members only pay taxes on their earnings and not for the company also. This allows members to avoid the double taxation seen in corporations. Sole-Proprietorship and Partnerships are individually owned non-incorporated companies. A lot of people like this form of business because the owner has complete autonomy (other than industry regulation) in the way that they run their business. However, the major drawback is the fact that the owner is 100% liable for all actions of and against the company. This means that if sued the plaintiff can come after the owners personal property as well as company property. The same goes for the IRS if the company is found in default of taxes. It's important to note, that anyone that is doing business and has not filed to be an entity will be treated as a sole proprietorship if found liable for any damages or back taxes incurred while you are unregistered. Also most states and cities can inflict fines and penalties for operating an unregistered business.
You can also use Geauxbiz to fill out forms to register with the states department of revenue and apply for a state employer ID number. After you've gotten registered with the state, you now need to apply for a Federal Tax ID Number with the IRS. The final step to the registration process is to apply for an occupational license in your local city or parish/county. In some cities you do this at your local Chamber of Commerce, but for others (such as in New Orleans) you have to apply at City Hall.
After you have completed these steps then you have all the documents you need in order to open a company bank account and turn the lights on at your building (if you aren't a home business). As mentioned before, taking these steps makes you look more favorably in the eyes of your customers and future customers. Most consumers won't do business with companies that they don't trust. So seeing that you are a legitimate business helps to instill consumer confidence and can lead to more business from unsuspected sources. Also after you complete these steps you can legitimately seek out funding through small business loans, grants, venture capitalist, and philanthropist. At its core becoming a legal business entity is the difference between just having a side hustle and truly being serious about your business.
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