Mark Kohler outlines four ways to legally start a business: operating as a sole proprietor using your SSN, getting sales tax and business licenses, forming an LLC or corporation with state filings, and obtaining professional licensing if required. He explains when informal operation works and when you need to formalize, especially if you hire employees or face liability.
Chapters
Okay, the big question in the title of today's webinar podcast is what you need to file legally to have your business up and going. Now that's a tricky one. Let's go through some different options here. The first option is you can be a sole proprietor with your own Social Security number and you can just. I'm going to call that option one. So option one, a sole prop with your Social Security number. Depending on the type of business, you're off to the races. Now, let's say you're selling a product. So if you're selling a product and you're a sole proprietor, you can still do that, but you're going to need to get a sales tax ID number. You're going to have to collect sales tax generally. Now if you say, well, I'm selling it on the web, I don't have to. Well, different states are starting to crack down on that. So you want to research your state and what the rules are if you're going to sell on the web. Many times states say at least you have to collect sales tax on the people in the state where your business is based. And if you go, well, I'm based out of Nevada. No, you're working out of your basement in Arizona. You're doing business in Arizona. Don't think you're going to get away with that. You ultimately get caught. Not good. So if you're selling product, you'll need to get a sales tax ID number, sometimes called a resell ID number that's going to allow you to buy product wholesale, even at Costco. You won't have to pay sales tax at Costco because you're going to quote, unquote, resell it. That's the theory. So you're off to the races. Do you need a business license? Again, that's a local city, county thing. There's many times the city or county, I've been in business for years, sometimes I don't have business license. Fine, go pay 50 bucks. I mean, it's just another way for the city or county to get money for, you know, local type business services, I guess. But you're not going to jail if you don't get a business license. Now where it starts to get a little trickier is when you say, I want asset protection. I've got my lemonade stand. I'm just a sole proprietor and I want to get protection. That's when we start to form an entity. And when you form an entity, we go into realm. I'm going to call this number four Because I missed a three. I want to talk about. If you're going to form an entity, whether it's an LLC or a corporation, you're going to have to file with the state and you're going to have to get a tax ID number and you're going to have to have a registered agent address. That's where someone can accept mail at a street address. You can't do it all PO Box. And you're going to have to have a company address, which can oftentimes be a P.O. box. So you can have a P.O. box with your street address. But when you go down the entity route, there's. There's all this and more bylaws, minutes, membership or stock certificates. And this is where we have a service at 450 bucks to $800 to meet with an attorney at the high end here and get it designed and set up in your state. We had someone recently come to our office, has spent three or four thousand dollars on an entity, and then came to our office and asked, what do I do next? And they were really. It was really kind of frustrating or sad. But we try to be extremely affordable. We haven't raised our rates on setting up an entity in 10 years. We're just trying to get more efficient and helping you get started. Now, that's option four. So let's make that option four. We can answer some questions there. And I've already got a couple questions on this topic from Patty Arthur. This is good. So we're going to come to a lot of those questions here. Now, number three, the reason why I skipped over one is if you're forming a business, there might be some regulatory filing that you have to do with what's called doppel, the Department of Professional Licensing, for example. Let's say you're a Realtor, you're going to have to get licensed with the state, so you could be a sole proprietor for federal purposes. Maybe you don't even get a business license, a business license for county purposes. And you don't get a sales tax ID number because you're not selling product. But you're a Realtor, so the division of real estate wants to monitor you. You could be. So I'm going to put a professional license here and think of all of them, right? You could be a doctor, a dentist, a lawyer, realtor, architects, engineers, physical therapist, chiropractor. All these people might have to get marriage licensed, marriage and family therapist. All these people have to get licenses to be legal. So you might have to check with your state on regarding the professional license. Also when I said the word lemonade stand, there's been cities across the country and oftentimes I get an interesting post on social media where cities have come and shut down kids because they didn't have a business license. I mean you're like really? Or who else might go after a lemonade stand? Who might. I'm asking my team in here. Well, it might be the food department, right? They're going to come and go. You're not sanitary, this is a mess. You're going to make someone sick. So whenever you're selling food in a food truck or at a fair or at a farmers market, you might have to get licensed with the local food department. For lack of a better word, they're going to have different names around the country before you can sell food. So all of these unique licenses to be legal are. You're going to have to look based on your certain type of business. Alright, the last thing I'm going to just say is let's see, 1, 2, 3. Maybe I should change this so it looks a little more normal. Make that three and this four. Okay, so we have three up here. Have an entity professional license, a business license again is a county or city thing. To be legal, you might need to get insurance. Some people are required to get insurance. The more formal your business is like a bank or a trust company, you have to get licensed with the feds or the state typically. Let's see how it goes. Let's see what questions you might have about being a legal business. Now saving taxes doesn't mean you to be legal. You're going to do something to save taxes. Those don't go hand in hand. You might say, mark, what should I do to save taxes? Well, that's a different question then. What do I have to do to be legal to run my business? But here's the big one. I just want to say this in summary and I'm all yours for Q and A. If you're going to start selling product or services, I was telling some neighbor kids, go out there and start cleaning garbage cans, go out and detail a car, go out and mow a lawn. That sole prop mentality of just getting out there with under your Social Security number, nine times out of 10 you're going to be fine just getting out there. But when you start to have employees, you start to sell product, it's a professional license, you might need to get insurance. You're worried about liability, that's when we're going to start doing these other things, but I tell so many people, just get out and go. Just start driving for Uber. Just get out there.
