<p>When you’re ready to incorporate your small business, you’ll need to choose whether to form an S corp or a C corp.&nbsp;</p><p>Is S corporation or C corporation the best business structure for your company? Each <a class="link" href="https://1800accountant.com/blog/6-tricks-to-choosing-the-best-entity-for-your-small-business">entity type</a> has unique benefits, and the S corp vs. C corp decision can have complex implications. We’ll help you understand each structure’s characteristics.&nbsp;&nbsp;</p><p>This article will compare the S corp vs. C corp business structures. You’ll learn the key differences and implications of choosing the best entity type for your business.&nbsp;</p><h2 class="wp-block-heading">Understanding Corporate Structures</h2><p>Before learning the differences between S corp and C corp, you should understand the basics of the <a class="link" href="https://1800accountant.com/blog/what-is-a-c-corporation" target="_self">corporate structure</a>.&nbsp;</p><p>A corporation is a legal entity separate from its business owners, also known as shareholders.&nbsp;</p><p>One significant benefit of the corporate structure? Corporations offer limited liability protection, which means shareholders cannot be held responsible for corporate debts or liabilities. Business owners gain protection from corporate claims.&nbsp;</p><p>To form a corporation, the business owner must file articles of incorporation with the secretary of state.&nbsp;</p><p>Incorporation documents establish a registered agent, adopt bylaws, and select the board of directors. After incorporation, the company should hold annual board meetings.</p><p>Every corporation must file annual reports and <a class="link" href="https://1800accountant.com/blog/corporate-tax-rates">tax returns</a> to maintain compliance.&nbsp;</p><h3 class="wp-block-heading">What Is an S Corp?&nbsp;</h3><p>The <a class="link" href="https://1800accountant.com/blog/business-entity-s-corp">S corporation structure</a> follows Internal Revenue Code Subchapter S rules. After incorporation, owners can elect S corp status by filing <a class="link" href="https://www.irs.gov/pub/irs-pdf/f2553.pdf" target="_blank" rel="noreferrer noopener">IRS Form 2553</a> (we’ll explain more about the election later).</p><p>S corporations are pass-through entities for income tax purposes, which means S corps do not pay corporate income tax on their earnings. S corps must distribute income and deductions to their shareholders annually.&nbsp;</p><p>Each shareholder receives a prorated distribution determined by their ownership percentage. Shareholders pay tax on their share of business income and deductions.&nbsp;</p><p>Business owners find the S corp business structure attractive because pass-through entities avoid double taxation.&nbsp;</p><p>However, S corps must follow specific eligibility rules or risk terminating their S corporation election. <a class="link" href="https://www.irs.gov/pub/irs-prior/p589--1995.pdf" target="_blank" rel="noreferrer noopener">S corp requirements</a> include the following:&nbsp;</p><ul><li>S corps cannot have more than 100 shareholders or more than one class of stock.</li><li>Shareholders cannot be corporations, partnerships, or nonresident aliens.&nbsp;</li><li>S corps must generate less than 25% of their gross receipts from passive investment income.&nbsp;</li><li>S corporations must maintain records of each shareholder’s basis.&nbsp;</li></ul><p>S corp rules can be complex. We recommend <a class="link" href="https://1800accountant.com/services/entity-formation">consulting with accounting professionals</a> who specialize in entity formations.</p><h3 class="wp-block-heading">What Is a C Corp?</h3><p><a class="link" href="https://1800accountant.com/blog/form-c-corp">C corporations</a> follow Subchapter C of the Internal Revenue Code. All newly incorporated businesses default to the C corp structure.&nbsp;</p><p>C corporations can raise capital by adding unlimited shareholders, who contribute cash in exchange for business ownership. Shareholders can include individuals, partnerships, corporations, or other entities. Additionally, C Corps can issue multiple classes of stock.&nbsp;</p><p>C corps aren’t required to distribute earnings to shareholders, so C corp business owners aren’t guaranteed annual dividends. C corps may choose to reinvest earnings and fund business growth.</p><p>The major downside to the C corp structure? Double taxation.&nbsp;</p><p>Double taxation means the C corporation and its shareholders pay tax on the business’s income. First, the C corp pays tax on its net income. Second, the C corp’s shareholders pay tax on corporate dividends.&nbsp;</p><p>Regardless, many business owners find that the benefits of the C corp’s flexibility outweigh the cost of double taxation.</p><p>Need help determining whether the C corp business structure is right for your business? Our <a class="link" href="https://1800accountant.com/services/entity-formation">entity formation professionals</a> can support you.&nbsp;</p><h2 class="wp-block-heading">S Corp vs. C Corp: The Key Differences</h2><p>As we’ve covered, S corporations and C corporations share many characteristics. The following table summarizes the key differences between S corp and C corp structures.&nbsp;</p><figure><table><tbody><tr><td><strong>S Corporation vs. C Corporation</strong><strong> Differences</strong></td><td><strong>S Corporation</strong></td><td><strong>C Corporation</strong></td></tr><tr><td><strong>Formation</strong></td><td>File articles of incorporation with the secretary of state.&nbsp;File IRS Form 2553 to elect S corp status.</td><td>File articles of incorporation with the secretary of state.</td></tr><tr><td><strong>Federal Tax Treatment</strong></td><td>S corps avoid double taxation.&nbsp;</td><td>C corps are subject to double taxation.&nbsp;</td></tr><tr><td><strong>State Tax Treatment</strong></td><td>S corp treatment varies by state.</td><td>C corps file state income tax returns.</td></tr><tr><td><strong>Federal Income Tax Form</strong></td><td>IRS Form 1120S</td><td>IRS Form 1120</td></tr><tr><td><strong>Ownership</strong></td><td>Shareholders can include individuals, trusts, and estates.&nbsp;Shareholders cannot include corporations, partnerships, or nonresident aliens.</td><td>C corp shareholders can include any individual or entity type.</td></tr><tr><td><strong>Shareholder Restrictions</strong></td><td>S corps cannot have more than 100 shareholders.S corps cannot issue more than one class of stock.&nbsp;</td><td>C corps can have unlimited shareholders and multiple classes of stock.&nbsp;</td></tr><tr><td><strong>Profit Distribution</strong></td><td>S Corps must distribute income and deductions to each shareholder annually.&nbsp;</td><td>C corps may distribute dividends to shareholders and/or reinvest corporate earnings.</td></tr></tbody></table></figure><h2 class="wp-block-heading">Tax Implications of Choosing S Corp vs. C Corp</h2><p>Let’s consider a (simplified) example illustrating S corporation vs. C corporation tax impacts.&nbsp;</p><p>Compare two corporations: QRS Company is an S corp, and ABC Company is a C corp. The companies share the following facts:&nbsp;</p><ul><li>Each corporation has two owners, and each owner holds 50% ownership.<br /></li><li>During 2023, the corporations each earned $1,000,000 and reported taxable income of $500,000.<br /></li><li>Each shareholder was subject to a combined federal and state income tax rate of 40% on corporate distributions.&nbsp;</li></ul><h3 class="wp-block-heading">S Corp Tax Implications Example</h3><p>QRS Company met all S corp requirements and did not pay federal or state income tax.&nbsp;</p><p>QRS Company distributed all profits to its shareholders, so each owner received $250,000. Each owner paid taxes of $100,000 on their distributions.</p><p>The shareholders each kept $150,000 after taxes.&nbsp;</p><h3 class="wp-block-heading">C Corp Tax Implications Example&nbsp;</h3><p>ABC Company paid $105,000 of federal income tax at a <a class="link" href="https://1800accountant.com/blog/corporate-tax-rates">21% tax rate</a>. Assuming a 7% state income tax rate, ABC Company paid $35,000 of state income tax.&nbsp;</p><p>The company distributed its after-tax income of $360,000 as dividends, so each shareholder received $180,000. Each owner paid $72,000 of taxes on dividends.&nbsp;&nbsp;</p><p>The shareholders each kept $60,000 after taxes.&nbsp;</p><h3 class="wp-block-heading">S Corp vs. C Corp: Summary of Tax Implications&nbsp;</h3><p>The following table compares the above example’s S corp vs. C corp tax implications.&nbsp;</p><figure><table><tbody><tr><td><strong>Corporate Tax Implications</strong></td><td><strong>S Corp</strong></td><td><strong>C Corp</strong></td></tr><tr><td>Taxable income</td><td>$500,000</td><td>$500,000</td></tr><tr><td>Federal income tax&nbsp;</td><td>$0</td><td>$105,000</td></tr><tr><td>State income tax&nbsp;</td><td>$0</td><td>$35,000</td></tr><tr><td>Dividend distributions (total)</td><td>$500,000</td><td>$360,000</td></tr><tr><td></td><td></td><td></td></tr><tr><td><strong>Shareholder Tax Implications (per owner)</strong></td><td><strong>S Corp</strong></td><td><strong>C Corp</strong></td></tr><tr><td>Distributions to each owner</td><td>$250,000</td><td>$180,000</td></tr><tr><td>Federal and state income taxes (40% total)</td><td>$100,000</td><td>$72,000</td></tr><tr><td>After-tax income</td><td>$150,000</td><td>$108,000</td></tr><tr><td></td><td></td><td></td></tr><tr><td><strong>Total Taxes Paid</strong></td><td><strong>S Corp</strong></td><td><strong>C Corp</strong></td></tr><tr><td>Corporate taxes paid</td><td>$0</td><td>$140,000</td></tr><tr><td>Shareholder taxes paid (total for two owners)</td><td>$200,000</td><td>$144,000</td></tr><tr><td>Total taxes paid</td><td>$200,000</td><td>$284,000</td></tr></tbody></table></figure><p>As you can see, the S corp and its shareholders enjoyed a lower total tax bill because S corps aren’t subject to double taxation. Further, the S corp shareholders kept more after-tax income than the C corp shareholders.&nbsp;</p><p>The above example illustrates potential tax implications with a simplified fact pattern, but your S corporation vs. C corporation decision should include non-tax considerations.&nbsp;</p><p>If you’re interested in S corp status for your company, we recommend <a class="link" href="https://1800accountant.com/services/small-business-taxes">consulting tax professionals</a> who can help you consider the economic and administrative impacts.</p><h2 class="wp-block-heading">How to Change from C Corp to S Corp (Or vice Versa)</h2><h3 class="wp-block-heading">Filing an S Corp Election</h3><p>As we mentioned, C corp status is the default for new corporations. You can make an S corp election by filing <a class="link" href="https://www.irs.gov/pub/irs-pdf/f2553.pdf" target="_blank" rel="noreferrer noopener">IRS Form 2553</a>, Election by a Small Business Corporation.&nbsp;</p><p>Before you file, confirm your business meets the S corp requirements and prepare to provide information about each shareholder.&nbsp;</p><p>Review the <a class="link" href="https://www.irs.gov/businesses/small-businesses-self-employed/s-corporations" target="_blank" rel="noreferrer noopener">S corporation eligibility criteria</a> and consult your tax professional if needed.&nbsp;</p><p>After you receive the IRS’s approval, you may need to notify state and local taxing agencies of your S corp status. We can help you determine which <a class="link" href="https://1800accountant.com/services/small-business-taxes">notifications and disclosures</a> you should file.&nbsp;</p><h3 class="wp-block-heading">Terminating an S Corp Election</h3><p>If you wish to end your S corp status and revert to a C corp, you can file a <a class="link" href="https://www.irs.gov/forms-pubs/revoking-a-subchapter-s-election" target="_blank" rel="noreferrer noopener">statement of revocation</a> with the IRS.</p><p>The statement should include your company’s information, shareholder details, and shareholder signatures. Be sure to review the full requirements and due dates before filing.&nbsp;</p><h2 class="wp-block-heading">Partner with Experts Who Understand What’s Best for Your Specific Situation</h2><p>How do you know whether the S corp vs. C corp business structure is best for your company?&nbsp;</p><p>Ultimately, your decision requires weighing each entity type’s benefits and drawbacks.&nbsp;</p><p>Consider your company’s plans for raising capital and your shareholders’ tolerance for double taxation. Think through the requirements of each corporate structure – do you have the bandwidth to maintain compliance?</p><p>Partner with 1-800Accountant for your <a class="link" href="https://1800accountant.com/services/entity-formation">business structure decision</a>. Our tax professionals can help you understand the complex implications for your business. We’ll support your entity formation and assist with your <a class="link" href="https://1800accountant.com/services/small-business-taxes">business compliance</a>.&nbsp;</p>

When you’re ready to incorporate your small business, you’ll need to choose whether to form an S corp or a C corp.&nbsp; Is S corporation or C corporation the best business structure for your company? Each entity type has unique benefits, and the S corp vs. C corp decision can have complex implications. We’ll help [&hellip;]

s-corp-vs-c-corp_blog-header

S Corp vs. C Corp: Key Differences and How to Choose the Best Structure

<p>You’re finally ready to dive into your passion and create an organization for your cause.&nbsp;</p><p>Do you dream of supporting an underrepresented group, improving social welfare, or starting a sports club? After you decide on a goal, you should determine whether a non-profit or a not-for-profit organization is best for your mission.&nbsp;</p><p>You may wonder: What is the difference between non-profit vs. not-for-profit? This article will compare the two organization types. You’ll learn the key considerations and how to choose the organization type for your cause.</p><h2>Understanding Non-Profit Organizations</h2><h3>What Is a Non-Profit?&nbsp;</h3><p>A <a class="link" href="https://1800accountant.com/blog/non-profit-business-entities" target="_self">non-profit organization</a> is a business established for a specific public benefit.&nbsp;</p><p>Your non-profit’s purpose could be <a class="link" href="https://1800accountant.com/blog/4-types-of-non-profit-organizations">charitable, religious, or educational</a>. For example, many hospitals, churches, and public universities are non-profit organizations.&nbsp;</p><p>Despite its name, a non-profit organization may generate profits.&nbsp;</p><p>However, the entity’s earnings must funnel back to the non-profit to support its business activities. Non-profit organizations may not distribute profits to their members, directors, or officers.&nbsp;</p><p>The non-profit supports a social cause, so donations and business receipts should benefit the cause.</p><p>1-800Accountant can help you <a class="link" href="https://1800accountant.com/services/entity-formation">determine whether your organization is eligible</a> for non-profit status.&nbsp;</p><h3>Benefits of Non-Profit Organizations</h3><h4>Tax-Exempt Status</h4><p>Non-profit organizations enjoy several tax benefits.&nbsp;</p><p>Non-profits often qualify for <a class="link" href="https://www.irs.gov/charities-non-profits/applying-for-tax-exempt-status" target="_blank" rel="noreferrer noopener">exemption from federal income tax</a>, known as 501(c)(3) status. Non-profit organizations may also gain exemption from state and local taxes such as income, sales, and property tax. (If your non-profit hires employees, your organization is still responsible for payroll taxes.)</p><p>Further, donors can take tax deductions for charitable contributions to 501(c)(3) non-profit organizations. The IRS incentivizes donations to social causes by allowing tax benefits for people who support your mission.&nbsp;</p><p>To obtain 501(c)(3) status, the organization must form a legal entity separate from its owners. Eligible entity types include corporations, trusts, or associations.&nbsp;</p><p>Before applying for tax-exempt status, review the <a class="link" href="https://www.irs.gov/charities-non-profits/before-applying-for-tax-exempt-status" target="_blank" rel="noreferrer noopener">IRS application process</a> and <a class="link" href="https://www.irs.gov/pub/irs-pdf/p557.pdf" target="_blank" rel="noreferrer noopener">filing requirements</a>.&nbsp;</p><p>You can check your organization’s eligibility with the <a class="link" href="https://www.irs.gov/charities-non-profits/application-process" target="_blank" rel="noreferrer noopener">IRS tax-exemption eligibility questions</a>. The IRS also provides links to <a class="link" href="https://www.irs.gov/charities-non-profits/state-links" target="_blank" rel="noreferrer noopener">state websites containing resources</a> for tax-exempt organizations.&nbsp;</p><p>We know the terminology can get confusing. <a class="link" href="https://1800accountant.com/services/entity-formation">Let us support you</a> through your application process.&nbsp;</p><h4>Eligibility for Public and Private Grants</h4><p>Many public and private programs set aside annual funding to support charitable causes. Your non-profit can apply for grants to support your organizational purpose.&nbsp;</p><p>Many <a class="link" href="https://www.grants.gov/web/grants/learn-grants/grant-making-agencies.html" target="_blank" rel="noreferrer noopener">federal agencies</a> award grants to non-profit organizations. Eligible causes include educational access and heritage protection. You can <a class="link" href="https://www.grants.gov/web/grants/search-grants.html" target="_blank" rel="noreferrer noopener">search for available grants</a> and review the eligibility requirements.</p><h4>Lower Postal Rates</h4><p>Non-profit organizations may qualify for reduced postage prices from the US Postal Service. Educational, religious, and other organizations can <a class="link" href="https://faq.usps.com/s/article/What-is-Nonprofit-Mail" target="_blank" rel="noreferrer noopener">apply for non-profit postage rates</a>.&nbsp;</p><h4>Limited Liability Protection</h4><p>As mentioned, non-profits must organize as corporations, trusts, or associations. Each entity type is legally separate from its owners. Non-profit owners gain limited liability protection from potential claims against the organization.&nbsp;</p><h3>Disadvantages of Non-Profit Organizations</h3><h4>Public Scrutiny</h4><p>Non-profits must publicize their annual income statements and balance sheets.&nbsp;</p><p>Organizations can face scrutiny over amounts spent on salaries or administrative costs. The public could question how the spending directly supports the non-profit’s mission.&nbsp;&nbsp;</p><h4>Restrictions on Political Activities</h4><p>Non-profits can maintain social stances but cannot participate in certain political activities.&nbsp;</p><p>For example, non-profit organizations <a class="link" href="https://www.irs.gov/charities-non-profits/charitable-organizations/the-restriction-of-political-campaign-intervention-by-section-501c3-tax-exempt-organizations" target="_blank" rel="noreferrer noopener">cannot publicly support or oppose political candidates</a>. Non-profits must not donate to political parties or campaigns.&nbsp;&nbsp;&nbsp;</p><h4>Compliance Requirements</h4><p><a class="link" href="https://1800accountant.com/blog/nonprofit-taxes">Non-profit organizations must comply</a> with IRS annual reporting requirements. State and local authorities may impose additional compliance rules.&nbsp;</p><p>The <a class="link" href="https://www.irs.gov/charities-non-profits/annual-filing-and-forms" target="_blank" rel="noreferrer noopener">IRS requires the following</a> annual filings:</p><ul><li><strong>Form 990 Series informational returns</strong>, which include the organization’s annual financial statements.</li><li><strong>Employment tax forms</strong> report employment taxes for organizations with employees.</li><li><strong>Unrelated business income tax forms</strong> report revenue from activities unrelated to the non-profit purpose.&nbsp;</li></ul><p>Review your state and local tax authority websites for additional reporting requirements. We can help you <a class="link" href="https://1800accountant.com/services/small-business-taxes">maintain non-profit compliance</a>.</p><h3>Examples of Non-Profit Organizations</h3><p>Non-profit organizations may include churches, public schools, hospitals, research organizations, and museums.&nbsp;</p><p>You may be familiar with some of the following non-profit organizations:</p><ul><li>American Heart Association</li><li>American Red Cross</li><li>ASPCA</li><li>Goodwill Industries</li><li>Habitat for Humanity</li><li>United Way</li></ul><h2>Understanding Not-for-Profit Organizations</h2><h3>What Is a Not-for-Profit?&nbsp;</h3><p>A not-for-profit organization is a group that supports a specific mission.</p><p>Not-for-profit organizations aren’t required to benefit the public. For example, not-for-profits can include sports clubs, business affiliations, and social organizations.&nbsp;</p><p>Like non-profit organizations, not-for-profit organizations must not distribute profits to members, owners, or directors. Earnings must further the not-for-profit’s purpose.&nbsp;</p><h3>Benefits of Not-for-Profit Organizations</h3><h4>Flexibility in Organizational Goals</h4><p>Your not-for-profit organization can choose one of many activities to support, including recreation, business, and other community-based interests. The not-for-profit owners can choose a goal that aligns with their interests.&nbsp;</p><h4>Tax Advantages</h4><p>Like non-profits, not-for-profit organizations may be eligible for exemption from federal income tax.&nbsp;</p><p>Your not-for-profit may not be eligible for 501(c)(3) status, but the IRS provides income tax exemptions for <a class="link" href="https://www.irs.gov/charities-non-profits/other-tax-exempt-organizations" target="_blank" rel="noreferrer noopener">numerous organizations</a>. For example, certain business leagues may qualify for federal income tax exemption under Internal Revenue Code Section 501(c)(7).&nbsp;</p><p>We recommend reviewing the <a class="link" href="https://www.irs.gov/charities-non-profits/other-non-profits/requirements-for-exemption" target="_blank" rel="noreferrer noopener">list of requirements for tax exemption</a> to understand whether your not-for-profit should apply.&nbsp;</p><p>Consult <a class="link" href="https://1800accountant.com/services/small-business-taxes">small business professionals</a> who can walk you through the rules.&nbsp;</p><h4>Access to Grants and Other Funding Sources</h4><p>Not-for-profit organizations have many of the same funding opportunities as non-profit organizations.&nbsp;</p><p>Depending on your not-for-profit’s mission, your organization can apply for public and private grants to help keep the business running. Welfare organizations often qualify for more opportunities than social clubs and sports leagues.&nbsp;</p><h3>Disadvantages of Not-for-Profit Organizations</h3><h4>Public Scrutiny</h4><p>Like non-profits, not-for-profits can face public scrutiny over spending decisions. The public could question whether spending supports the not-for-profit’s goals.</p><h4>Limited Tax Deductibility for Donors</h4><p>Donors can only take tax deductions for charitable contributions to 501(c)(3) tax-exempt organizations. If your not-for-profit does not qualify for 501(c)(3) status, your donors cannot deduct their contributions to your organization.&nbsp;</p><p>For example, local employee associations may qualify for tax-exempt status under 501(c)(4) but could not offer tax deductibility for donors.&nbsp;</p><p>You can <a class="link" href="https://www.irs.gov/charities-non-profits/common-tax-law-restrictions-on-activities-of-exempt-organizations" target="_blank" rel="noreferrer noopener">review the restrictions on tax-exempt organizations</a> to understand the rules that apply to your not-for-profit.&nbsp;</p><h4>Compliance Requirements</h4><p>Like non-profit organizations, not-for-profits must file annual financial statements and informational returns.&nbsp;</p><p>Tax-exempt organizations should follow the <a class="link" href="https://www.irs.gov/charities-non-profits/annual-filing-and-forms" target="_blank" rel="noreferrer noopener">IRS annual reporting requirements</a> or risk losing tax advantages. Your not-for-profit should follow federal, state, and local compliance requirements.&nbsp;</p><p><a class="link" href="https://1800accountant.com/services/small-business-taxes">Consult with a tax professional</a> to understand which forms to submit.&nbsp;</p><h3>Examples of Not-for-Profit Organizations</h3><p>Not-for-profit organizations may include athletic leagues, business affiliations, and social welfare organizations.&nbsp;</p><p>The following not-for-profit examples illustrate a range of organizational purposes:&nbsp;</p><ul><li>American Federation of Teachers</li><li>American Legion</li><li>Greater Rochester Chamber of Commerce</li><li>Jules Weber Foundation</li><li>Laborers' International Union of North America</li><li>Noyac Golf Club</li></ul><h2>Non-Profit vs. Not-for-Profit Organizations: Key Similarities and Differences</h2><h3>Key Similarities</h3><p>Non-profit organizations and not-for-profit organizations share several characteristics.</p><p>Similarities between non-profit vs. not-for-profit include the following:&nbsp;</p><ul><li><strong>Use of profits</strong>: Both non-profit and not-for-profit organizations must not distribute profits to owners, members, or directors.</li><li><strong>Public scrutiny</strong>: Both organizations face potential financial scrutiny and should ensure spending aligns with their stated purpose.</li><li><strong>Eligibility for private and public funding</strong>: Non-profit and not-for-profit organizations can apply for grants and private funding.</li><li><strong>Stringent compliance requirements</strong>: Tax-exempt organizations must file annual informational returns and comply with compliance requirements.&nbsp;</li></ul><h3>Key Differences&nbsp;</h3><p>What are the differences between non-profits and not-for-profits? The following characteristics differ between non-profit vs. not-for-profit:&nbsp;</p><ul><li><strong>Organizational goals</strong>: While non-profit organizations must support the public benefit, not-for-profit organizations may exist to further their owners’ interests.</li><li><strong>Deductibility of charitable contributions:</strong> Donations to non-profit organizations are generally tax-deductible for the donor, but not all contributions to not-for-profit organizations qualify for deductibility.</li><li><strong>Tax-exempt status</strong>: 501(c)(3) tax-exempt status applies to specific activities, and many not-for-profit organizations cannot qualify for the same tax advantages that non-profits can obtain.&nbsp;</li></ul><h2>How to Choose: Non-Profit vs. Not-for-Profit</h2><p>Now you know the key characteristics of non-profits vs. not-for-profits. How do you choose the best organization type?</p><p>Consider your goals and imagine your mission’s beneficiaries. For example, think through the following key considerations:&nbsp;</p><ul><li><strong>Organizational purpose</strong>: Non-profit organizations must benefit the public, while not-for-profit organizations can align with owners’ interests.</li><li><strong>Fundraising needs</strong>: Non-profit organizations can solicit donations by providing tax deductions for donors. In contrast, not-for-profit organizations might not secure large private donations.</li><li><strong>Compliance requirements</strong>: Non-profit organizations typically follow stricter reporting requirements than not-for-profits, depending on their tax-exempt status.&nbsp;</li></ul><p>Don’t hesitate to consult <a class="link" href="https://1800accountant.com/services/entity-formation">entity formation professionals</a> for help with your situation.&nbsp;</p><h2>Partner with Small Business Experts to Understand Non-Profits</h2><p>Now you understand the non-profit vs. not-for-profit differences, and you’re one step closer to choosing the best organization to support your cause.&nbsp;</p><p>As you navigate the complexities of your decision, consider your goals, beneficiaries, and fundraising needs. Be sure to seek guidance from legal and accounting experts.&nbsp;</p><p>1-800Accountant professionals can help you understand the entity formation intricacies. <a class="link" href="https://1800accountant.com/services/entity-formation">Consult entity formation experts</a> for support in pursuing your mission.</p>

You’re finally ready to dive into your passion and create an organization for your cause.&nbsp; Do you dream of supporting an underrepresented group, improving social welfare, or starting a sports club? After you decide on a goal, you should determine whether a non-profit or a not-for-profit organization is best for your mission.&nbsp; You may wonder: [&hellip;]

non-profit-vs-not-for-profit_blog-header

Non-Profit vs. Not-for-Profit: Key Considerations and How to Choose the Best Organization Type

<p>A non-profit's mission is to further a public good that benefits society. Investors and private citizens make charitable donations to fund non-profits not for a return on investment but for the benefits they hope to see provided to others in need. Running a non-profit is a noble venture, but it can be difficult, especially if you're new to the space.<br><br>Whether you're readying the launch of your non-profit or in the middle of discovery, use this blog to learn about various non-profit entities, the formation process, and the challenges these organizations face.&nbsp;</p>



<h2>What is a non-profit business entity?</h2>



<p>Non-profit business entities are organizations that do not operate for profit. Instead of focusing on producing profit for shareholders, the money earned by a non-profit is used for paying staff, supporting business operations, and promoting the public good. Broadly speaking, this is what qualifies as a non-profit.</p>



<p>Legal non-profit status makes those organizations tax-exempt. Social service agencies, churches, philanthropic foundations, public schools, charities, and museums illustrate the diversity of non-profits. While there are different categories of non-profits with specific restrictions, all non-profits must follow rigid rules governing their organization and management, which helps to ensure they're politically nonpartisan.&nbsp; &nbsp;<br></p>



<p>Non-profits enjoy a status that exempts them from federal income taxes and most state taxes. This also means most donations an individual or business makes to a non-profit can also be claimed as a deduction on their tax return.&nbsp;</p>



<p>Non-profits must prove they're worthy of public trust to qualify for tax-exempt status. They must file their taxes as a non-profit and submit annual informational returns about their finances.&nbsp;</p>



<h2>Different types of non-profit business entities</h2>



<p>There are <a class="link" href="https://1800accountant.com/blog/4-types-of-non-profit-organizations">many types of non-profit organizations</a>, with the most common non-profit business structure being a 501(c)(3), which includes most charitable organizations, foundations, and beneficiary organizations. Other common types of non-profits include:&nbsp;</p>



<ul>
<li>501(c)(1): Corporations organized by the federal government to serve a public purpose.&nbsp;</li>



<li>501(c)(4): Labor unions and other employee associations that promote employee welfare.</li>



<li>Beneficiary associations falling under 501(c)(11) or 501(c)(12).<br></li>
</ul>



<h2>The process of forming a non-profit organization</h2>



<p>Use this as your step-by-step <a class="link" href="https://1800accountant.com/blog/complete-guide-start-business">guide to starting a business</a> and applying for non-profit status.&nbsp;</p>



<h3><strong>1. Research Your Issue and the Needs of Your Area</strong></h3>



<p>What is the need you’re trying to address? Find out what the problem is and study the issue. What are the root causes? Are there other organizations in your area doing similar work? You want to understand the subject well enough to make a difference.</p>



<p>You also want to avoid duplicate efforts if someone else already meets your area's needs.&nbsp;</p>



<h3><strong>2. Develop a Business Plan</strong></h3>



<p>What will your non-profit do, and what will it be called? How exactly will you fulfill your purpose, and how will you raise funds?&nbsp;</p>



<p>Your business plan should reflect the wealth of research you’ve conducted. You want to show grant providers and investors that you have the passion and understanding to make good use of their funds to make a difference.&nbsp;</p>



<h3><strong>3. Recruit a Board of Directors</strong></h3>



<p>As a publicly-owned organization, your non-profit will need a volunteer board of directors to oversee management and help with long-term decisions and planning. The board should comprise people who care about the social issue and the non-profit’s mission. </p>



<p>Ideally, your board should include community leaders from the area and members of the organization’s affected target population.&nbsp;&nbsp;&nbsp;</p>



<h3><strong>4. File Articles of Incorporation</strong></h3>



<p>Now that you’ve drafted your initial plan, you can prepare and file your paperwork and begin operating.&nbsp;</p>



<p>You may need to file articles of incorporation and pay a paperwork fee in every state you plan to operate in. You’ll only need to file with one state for most non-profits concerned with a single area.&nbsp;</p>



<h3><strong>5. Request 501(c)(3) Status</strong></h3>



<p><a class="link" href="https://www.irs.gov/charities-non-profits/application-process">Follow the IRS 501(c)(3) non-profit application process</a> and apply with the accompanying fee. Without it, you won't be able to solicit donations or qualify for tax-exempt purchases.&nbsp;</p>



<h2>Funding for non-profits&nbsp;</h2>



<p>While numerous avenues exist to gain financial support, the two most common ways non-profits receive funding are through grants and charitable donations. Whichever you choose to pursue, there's a lot of work involved.<br><br>You'll have to research the various grants offered by governments, corporations, and foundations to identify those relevant to your non-profit. Grant applications often ask for a lot of information and may have requirements your non-profit has yet to meet.&nbsp;&nbsp;</p>



<p>Charitable donations can be secured in a variety of ways. You could approach members of your community individually who are aligned with your vision, throw a fundraising event, or network with relevant donor organizations.&nbsp;</p>



<p>Fundraising can be a full-time job and require someone extroverted to gain support, especially early on as your non-profit develops.</p>



<h2>Benefits of tax-exempt status</h2>



<p>The tax-exempt status of your non-profit is critical, and it can be a catastrophic blow if revoked. Without this status, your non-profit must pay taxes on donations, while donors can no longer write off contributions. Losing tax-exempt status will also close the door to future grants and donations.<br><br>Luckily, it isn't difficult to maintain non-profit, tax-exempt status when you adhere to the following:&nbsp;</p>



<ul>
<li>The non-profit must operate exclusively for <a class="link" href="https://www.irs.gov/charities-non-profits/charitable-organizations/exempt-purposes-internal-revenue-code-section-501c3">exempt purposes as described in the IRS code</a>. These can be charitable, religious, educational, scientific, literary, or other causes concerned with public safety.</li>



<li>Non-profits cannot advocate for or against specific political candidates.&nbsp;</li>



<li>Non-profits cannot contribute to political campaigns.</li>



<li>Non-profits cannot benefit from private interests, and private shareholders should collect no part of their earnings.&nbsp;&nbsp;</li>
</ul>



<h2>Challenges and considerations in running a non-profit organization</h2>



<p>There are numerous challenges facing non-profit companies, with staying organized and maintaining healthy funding levels being the most complex and persistent.<br><br>Thousands of non-profits are vying for grants and donor dollars, with more mature organizations hiring dedicated personnel to go after and secure funding. Due to the intense competition, your non-profit can do everything right and still walk away empty-handed. While there's no secret recipe to securing the funding your non-profit needs, being persistent and ensuring paperwork and other areas of scrutiny are engaging, and error-free helps.<br><br>Keeping your records organized and financial statements accurate is a difficult challenge for non-profits. Prospective donors, the public, and the media will scrutinize these materials, so your ducks must be in a row. A lack of organization is usually a sign of a troubled non-profit, which more experienced donors will notice immediately and avoid.&nbsp;&nbsp;</p>



<h2>Partner with non-profit accounting professionals</h2>



<p>Running a non-profit organization is a wonderful societal good and helps people who are in need. But you can't do it all on your own. Whether you need to know <a class="link" href="https://1800accountant.com/blog/how-to-incorporate-a-business">how to start a non-profit organization</a> or require help completing a <a class="link" href="https://1800accountant.com/blog/how-to-file-501a">501(c)(3) tax-exempt form</a>, the non-profit experts at 1-800Accountant, America's leading virtual accounting firm for small businesses, can help. <br><br>Whether it's <a class="link" href="https://1800accountant.com/services/industry/nonprofit">non-profit taxes</a>, <a class="link" href="https://1800accountant.com/services/business-tax-advisory">tax advisory</a>, or any of our professional accounting services, we have the affordable solution you need to help your <a class="link" href="https://1800accountant.com/blog/nonprofit-taxes">non-profit stay compliant</a>. Schedule a quick consultation – usually 30 minutes or less – to learn how we can help. </p>

A non-profit&#8217;s mission is to further a public good that benefits society. Investors and private citizens make charitable donations to fund non-profits not for a return on investment but for the benefits they hope to see provided to others in need. Running a non-profit is a noble venture, but it can be difficult, especially if [&hellip;]

A presenter leading a workshop on non-profit business entities, using a whiteboard in a classroom setting surrounded by attentive listeners.

non-profit-business-entities-explained_blog-header

Non-Profit Organizations Explained

<p>Shifting your small business from its current legal entity to a multi-member limited liability company, commonly called an LLC, can be a transformative step in your career. Forming a multi-member LLC is a popular choice among entrepreneurs due to numerous benefits, including flexibility, favorable corporate tax considerations, and liability protections.</p>



<p>But before you make the leap, you should know what you're jumping into. This blog details important aspects of running a multi-member LLC, its advantages, step-by-step formation guidance, tax filing requirements, and more.&nbsp;</p>



<h2>What is a multi-member LLC?</h2>



<p>A multi-member LLC is a business entity not usually embraced by first-time owners. To qualify as this entity, you must have at least two "members" or owners who must be 18 or older. Members of the LLC do not have to be US citizens to own this type of business.<br><br>While a single-member LLC or a sole proprietorship is preferred for businesses with a single owner, multi-member LLCs are advantageous for shared endeavors. This can include family businesses and businesses owned with a friend, partner, or married couple, among other scenarios. This provides business owners with personal asset protection for each member and pass-through taxation, allowing profits and losses to pass directly to each member's personal tax return.&nbsp;&nbsp;</p>



<h2>The benefits of a multi-member LLC</h2>



<p>There are numerous advantages to forming as a multi-member LLC, including the following:</p>



<ul>
<li><strong>Flexibility.</strong> Structure the business in a way that best suits your needs, including choosing who manages it.</li>



<li><strong>Liability.</strong> Personal assets remain separate from the business, insulating members from experiencing personal liability if business assets are at risk.</li>



<li><strong>Easy maintenance.</strong> Fewer documents are needed to start a multi-member LLC than other&nbsp; types of LLCs.</li>



<li><strong>Favorable taxation.</strong> Members can claim the losses on their personal tax returns when the business loses money, helping decrease what's owed to the IRS.&nbsp;</li>



<li><strong>Ownership.</strong> Allows for shared ownership, facilitating a wide range of ideas and resources.</li>



<li><strong>Profit and loss allocation.</strong> Members can agree to distribute the profits and losses in a manner that might not match ownership percentages.</li>



<li><strong>Credibility.</strong> A multiple-member LLC increases your business credibility with potential partners, lenders, and investors.</li>
</ul>



<h2>Steps to form a multi-member LLC</h2>



<h3>Choose a Name</h3>



<p>The first step in starting your multi-member LLC is to choose your business name. The name must include a variant of ‘limited liability company’ or ‘LLC’ and must be unique. Some states offer a name reservation service for a fee.&nbsp;</p>



<h3>Get an Employer Identification Number (EIN)</h3>



<p>All businesses need an EIN to operate. Without it, you cannot open a business bank account or hire employees. Easily apply for a free EIN through the IRS website, which you will receive immediately.&nbsp;</p>



<h3>Select a Registered Agent</h3>



<p>Another critical step is working with a registered agent. A registered agent is a designated person who will accept federal and state legal documents on behalf of your business. Your registered agent must live in the same state as the location of your business.</p>



<p>After working with a registered agent, the next step is to create and submit your Articles of Organization.&nbsp;</p>



<h3>Submit Articles of Organization</h3>



<p>After you choose a name, work with a registered agent, create your articles of organization, and have optionally prepared an LLC operating agreement, you’ll file with the state. The filing includes submitting the Articles of Organization, a legal document providing the state with information about your LLC.&nbsp;</p>



<p>In the Articles of Organization, you’ll provide your LLC’s address and name and the LLC’s registered agent. You’ll send this document to the Secretary of State. After you pay a filing fee, you’ll receive formal certification, which allows you to begin operations.&nbsp;</p>



<h2>Operating Agreement for Multi-Member LLCs</h2>



<p>A multi-member <a class="link" href="https://1800accountant.com/blog/operating-agreement">operating agreement</a> allows you to customize and establish the rules owners agree to follow. Submitting this agreement to your state isn't mandatory, but it is essential for your multi-member LLC and ownership.<br><br>Your operating agreement will contain pertinent information that will provide answers for:&nbsp;</p>



<ul>
<li>The distribution of losses and profits&nbsp;</li>



<li>The management structure&nbsp;&nbsp;</li>



<li>Meeting structure and voting power</li>



<li>The rights and responsibilities of each member&nbsp;</li>
</ul>



<p>Other topics the agreement might address include designating the member responsible for drafting an annual report and protocol for when new members are added and how it might impact ownership interest.</p>



<h2>Tax Considerations for Multi-Member LLCs</h2>



<p>Multi-member LLC owners enjoy limited liability protection via pass-through taxation, where profits and losses flow directly to their respective personal income tax returns. While pass-through taxation is a feature shared with other business entities, multi-member LLCs have unique tax responsibilities due to the nature of their structure.<br><br>Unlike sole proprietors or LLCs, multi-member LLCs are responsible for submitting a Schedule K-1 form to the IRS. Schedule K-1 is the form used to report each owner's share of earnings, losses, credits, and deductions. Once completed, submit to the IRS with any other required documentation.&nbsp;</p>



<h2>Management and Decision-Making in Multi-Member LLCs</h2>



<p>Deciding who should manage the business and selecting who has decision-making power should be detailed in your operating agreement. There are two viable options: member-managed LLC and manager-managed LLC.<br><br>The member-managed option is the most common and typically involves each owner contributing to the daily operation of the business. While the member-managed route is more common at first, some businesses will opt to hire employees to manage aspects of the business once it grows beyond the scope of ownership's capabilities.&nbsp;</p>



<p><br>The other less common option for multi-member LLCs is manager-managed. This involves hiring employees to manage the business and deciding on the level of authority they should be empowered with. This is an excellent selection if ownership doesn't intend to be involved on a daily basis or if the company is already too large, requiring more experienced management.&nbsp;</p>



<h2>Common issues faced by multi-member LLCs</h2>



<p>Keeping your multi-member LLC compliant is an ongoing issue ownership must address. Compliance issues touch many aspects of the business, and falling behind or failing to handle one may impact other areas, creating a domino effect.<br><br>Common issues ownership must address include:&nbsp;</p>



<ul>
<li><strong>Licenses and permits.</strong> You are not permitted to operate if your business licenses expire.&nbsp;</li>



<li><strong>Member meetings. </strong>Owners are typically required to schedule meetings and record meeting minutes.&nbsp;</li>



<li><strong>Taxes. </strong>How to file taxes for a multi-member LLC<strong> </strong>can be tricky, and you'll need a multi-member LLC tax form. If your federal tax return is not filed on time or is underpaid, it could invite penalties and fees. IRS issues may impact your ability to seek capital, causing additional problems. &nbsp;<br></li>
</ul>



<p>There might be a point where the common issues multi-member LLCs face become too unwieldy for ownership to handle. This is usually a sign that businesses need assistance from more specialized professionals.&nbsp;</p>



<h2>Partner with an Accounting Expert to Optimize Your Multi-Member LLC</h2>



<p>Whether it's formation difficulties, federal income tax compliance issues, problems obtaining permits, or other common challenges, running a multi-member LLC takes a lot of work. Tackling and addressing such unpleasantries can sometimes feel impossible, which is why so many multi-member LLCs trust 1-800Accountant, America's leading virtual accounting firm for small businesses, for their professional needs.  <br><br>Whether it's <a class="link" href="https://1800accountant.com/services/small-business-taxes">small business taxes</a>, <a class="link" href="https://1800accountant.com/services/entity-formation">entity formation</a>, obtaining an <a class="link" href="https://1800accountant.com/blog/ein">EIN</a> for multi-member LLCs, or any of our professional accounting services, we have the solution you need at a price that works for you. Schedule a quick consultation – usually 30 minutes or less – to learn how we can help. </p>

Shifting your small business from its current legal entity to a multi-member limited liability company, commonly called an LLC, can be a transformative step in your career. Forming a multi-member LLC is a popular choice among entrepreneurs due to numerous benefits, including flexibility, favorable corporate tax considerations, and liability protections. But before you make the [&hellip;]

Three professionals discussing a document in an office with a presentation board titled "everything to know about multi-member llcs.

everything-you-need-to-know-about-multi-member-llcs_blog-header

Everything You Need to Know About Multi-Member LLCs

<p>If you’re <a class="link" href="https://1800accountant.com/blog/complete-guide-start-business">starting a business</a> or trying to grow an existing one, you may be considering incorporating your business. Wondering about the best states for incorporation is one of the most important parts of the process for several reasons that we’ll cover in this article.</p>



<p>We’ll also be discussing factors to consider when choosing a state for incorporation,&nbsp; the topic of foreign qualification and how it relates to incorporation, and a look at seven of the most popular states for incorporation.</p>



<h2>Background</h2>



<p>Incorporation is the process of creating a legal entity and separating it from the entity’s owners. For a business, the result of incorporation is a legal entity separating its income and assets from its owners and investors. Some of the reasons you may want to incorporate include:</p>



<ul>
<li>Protection of personal assets</li>



<li>Establish credibility</li>



<li>Easier access to capital</li>



<li>Perpetual existence</li>



<li>Tax planning flexibility</li>
</ul>



<h2>How to incorporate your business</h2>



<p>Here are the steps to take when you’ve decided that it’s time to incorporate your business.</p>



<p><strong>Step 1 - Choose a state.</strong> You must first choose a state in which to incorporate your business. We’ll elaborate on this point throughout the rest of this article. Once you’ve chosen a state, you may start <a class="link" href="https://1800accountant.com/blog/best-cities-to-start-a-business">researching the different cities</a> within that state.</p>



<p><strong>Step 2 - Name the registered agent.</strong> This is the person appointed to represent your corporation if someone needs to contact your business. While you could act as the registered agent, naming a third party to represent your business would allow you to protect your privacy as the owner.</p>



<p><strong>Step 3 - File articles of incorporation.</strong> This is the official application you’ll submit to the state of your choice with the appropriate fee.</p>



<p><strong>Step 4 - Declare tax structure.*</strong> All businesses that incorporate <a class="link" href="https://1800accountant.com/blog/form-c-corp">are taxed by default as a C corporation</a>. After a discussion with your tax advisor, you may wish to be taxed as an S corporation.</p>



<p><strong>Step 5 - Draft company bylaws. </strong>These are the rules that govern how your business will be run. Not all states require a set of bylaws, but it’s always good business practice to have them and adhere to them if your business is incorporated.</p>



<p><strong><em>*NOTE:</em></strong><em> You’ll often hear or read the terms “corporation” and “C corporation” used interchangeably. As a business owner, you should understand that terms are distinct from one another. “Corporation” is strictly a legal term, while the phrase “C corporation” is strictly a tax term used only by the IRS.</em></p>



<h2>What to consider when choosing a state to incorporate</h2>



<p>Here are some factors to consider when looking at the best states for incorporation.</p>



<ul>
<li><strong>Corporate Income Taxes. </strong>This is one of the top reasons a business may incorporate in a different state. In 2023, <a class="link" href="https://1800accountant.com/blog/corporate-tax-rates">44 states levied a corporate income tax</a>. Rates range from 2.5% in North Carolina to 11.5% in New Jersey.</li>
</ul>



<p><em>NOTE: Remember, though, that while you may incorporate your business in a state that doesn’t levy a corporate tax you’ll still be subject to another state’s tax laws if you operate your business there.</em></p>



<ul>
<li><strong>Individual Income Taxes.</strong> Instead of paying corporate taxes, your business’s tax liability may be calculated using individual income rates if your business is an S corporation. In 2023, <a class="link" href="https://taxfoundation.org/publications/state-individual-income-tax-rates-and-brackets/">43 states and the District of Columbia</a> will have an individual income tax, with each jurisdiction having its own set of tax rules.</li>



<li><strong>Fees.</strong> Some states have high formation and annual filing fees. California is infamous for its $800 annual fee for all corporations and limited liability companies, regardless of size, gross revenue, or net profit.</li>



<li><strong>Privacy laws.</strong> Certain states have strong privacy laws that can shield a business owner’s information from the general public.</li>
</ul>



<h2>Top 7 States to Incorporate Your Business</h2>



<p>Here’s a look at the top 7 states considered the best states for incorporation</p>



<p>But just because a particular state doesn’t appear on this list doesn’t mean it may not be a good choice for your business.</p>



<p>You’ll likely have to do a little digging to uncover which state(s) may be advantageous to incorporate for your business. A particular state may have a law you want to take advantage of, while another may have a provision you’ll want to avoid.</p>



<h3>Delaware</h3>



<p><strong>Advantages</strong></p>



<ul>
<li>Corporate laws are viewed as the most flexible in the U.S.</li>



<li>The Court of Chancery features judges who are experts in business law</li>



<li>A franchise tax is levied, but not a corporate income tax</li>



<li>No personal income tax for non-residents</li>



<li>Business owners can remain anonymous</li>
</ul>



<p><strong>Disadvantages</strong></p>



<ul>
<li>Larger corporations may find more benefits than smaller corporations</li>
</ul>



<h3>Nevada</h3>



<p><strong>Advantages</strong></p>



<ul>
<li>No corporate income tax, franchise tax, or personal income tax</li>



<li>Business owners can remain anonymous</li>
</ul>



<p><strong>Disadvantages</strong></p>



<ul>
<li>High incorporation fees</li>



<li>Perception by some that a business incorporated in Nevada is either not legitimate or is “shady”</li>
</ul>



<h3>Wyoming</h3>



<p><strong>Advantages</strong></p>



<ul>
<li>No corporate income tax, franchise tax, or personal income tax</li>



<li>Flexible management structure</li>



<li>Sales tax rate of 4% is one of the lowest in the U.S.</li>
</ul>



<p><strong>Disadvantages</strong></p>



<ul>
<li>Business owners who live in Wyoming may find more benefits than non-resident business owners</li>
</ul>



<h3>South Dakota</h3>



<p><strong>Advantages</strong></p>



<ul>
<li>No corporate income tax, franchise tax, or personal income tax</li>



<li>Strong protection from creditors</li>



<li>Accessibility to investment</li>
</ul>



<p><strong>Disadvantages</strong></p>



<ul>
<li>The sales tax rate is trending upward but still in the bottom half of states</li>
</ul>



<h3>Alaska</h3>



<p><strong>Advantages</strong></p>



<ul>
<li>No personal income tax</li>



<li>Top 5 lowest sales tax</li>
</ul>



<p><strong>Disadvantages</strong></p>



<ul>
<li>Corporate income tax and property tax are average</li>
</ul>



<h3>Florida</h3>



<p><strong>Advantages</strong></p>



<ul>
<li>No individual income tax and a modest corporate income tax</li>
</ul>



<p><strong>Disadvantages</strong></p>



<ul>
<li>Initial fees for setting up a corporation can run to several thousand dollars.</li>
</ul>



<h3>North Carolina</h3>



<p><strong>Advantages</strong></p>



<ul>
<li>Top 5 lowest corporate income tax rate</li>



<li>Top 20 lowest personal income tax&nbsp;</li>



<li>Low rate of unemployment insurance</li>
</ul>



<p><strong>Disadvantages</strong></p>



<ul>
<li>Property and sales tax are average</li>
</ul>



<h2>Incorporation Beyond State Borders</h2>



<p>Regardless of your business’s state of incorporation, you’ll need to officially register in every state in which your company conducts business. This registration, formally called a <a class="link" href="https://1800accountant.com/blog/foreign-qualification">foreign qualification</a>, is extremely important for several reasons:</p>



<ul>
<li><strong>Protects your company and employees</strong>. Qualifying as a foreign entity is the first step towards ensuring that your company will satisfy all required compliance obligations, including filing income taxes, sales and use taxes, employment taxes, workman’s compensation, etc. Meeting your compliance obligations will help legally protect both you as the business owner, and your employees.</li>



<li><strong>Fines and penalties.</strong> You may be subject to fines and penalties for each day you conduct business as an unregistered entity.</li>



<li><strong>Court representation.</strong> A business without foreign qualifications may have limited or no rights when settling legal disputes in some states’ courts.</li>
</ul>



<p>So what’s the definition of “conducting business in a state?” Here are some of the most common reasons why your business would need to qualify as a foreign entity before doing business in a new state:</p>



<ul>
<li>Establishing a physical presence such as an office building, retail store, or warehouse</li>



<li>Have one or more employees</li>



<li>Earning a substantial portion of your revenue</li>



<li>Conducting in-person meetings with clients</li>



<li>Purchasing property</li>
</ul>



<h2>Simple incorporation in all 50 states with 1-800 Accountant</h2>



<p>Choosing the right state to incorporate your business is an important step during the process of incorporating your business.</p>



<p>In this article, you’ve learned about the benefits of incorporating your business, the steps you need to take to achieve this, and why choosing the right state to incorporate your business is so important.</p>



<p>This is a reminder that even though a particular state wasn’t included on our list of top states to incorporate, there may be better choices for your business.</p>



<p>With so many factors to consider when selecting a state to incorporate your business, a 1-800Accountant <a class="link" href="https://1800accountant.com/services/entity-formation">incorporation expert</a> is just a few clicks away. Please contact us with any questions you have about incorporating your business.</p>

If you’re starting a business or trying to grow an existing one, you may be considering incorporating your business. Wondering about the best states for incorporation is one of the most important parts of the process for several reasons that we’ll cover in this article. We’ll also be discussing factors to consider when choosing a [&hellip;]

Digital graphic highlighting "top 7 best states to incorporate a business" with u.s. map and data charts in the background.

top-7-best-states-to-incorporate

Top 7 Best States to Incorporate a Business

<p>Doing business as, commonly referred to as a DBA, is a great way to protect your small business interests. A DBA does this by helping your small business develop in a way that protects both your business name and legal name.&nbsp;</p>



<p>Starting a DBA in Florida is quick and easy and will only take a few steps. Use this blog as your guide to setting up your DBA in the state.</p>



<h2><strong>What is a DBA?</strong></h2>



<p><a class="link" href="https://1800accountant.com/blog/dba">A DBA is</a> also known as an assumed name, fictitious name, or trade name. In Florida, DBAs are also known as fictitious names.</p>



<p>Although a DBA won’t provide your business with legal protection, it will allow you to operate using a different name from your business name or legal name. When <a class="link" href="https://1800accountant.com/services/entity-formation">setting up a business</a>, many states require the business owner and certain entity types to have a DBA.</p>



<h2><strong>Which business entities register for a DBA in Florida?</strong></h2>



<p>A fictitious name registration isn't required if you plan to form a corporation, LLC, or limited partnership. Other business entities, such as sole proprietorships, can register for a DBA in Florida.&nbsp;</p>



<h2><strong>How to start a DBA in Florida</strong></h2>



<p>There are four easy steps to starting your DBA in Florida.&nbsp;</p>



<h3><strong>Step 1: Check Name Availability</strong></h3>



<p>The initial step to starting your DBA in Florida is to check for business name availability. Your business name must be available and unique, and there are certain abbreviations and words you can’t use.&nbsp;</p>



<p>You can search for your business name<a class="link" href="http://dos.sunbiz.org/ficinam.html"> online</a> through the Sunbiz database.&nbsp;</p>



<p>Finding a unique brand name and a usable domain to go with it can be a bit of a time-sink for new business owners.<a class="link" href="https://businessnamezone.com/?partner=1800Accountant"> This free tool</a> from Business Name Zone generates name and domain combos for you based on your input – and it only takes a few minutes.</p>



<h3><strong>Step 2: Legal Notice Advertisement</strong></h3>



<p>Next, you'll have to release a legal notice. The Chapter 50 Florida statute <a class="link" href="http://www.leg.state.fl.us/Statutes/index.cfm?App_mode=Display_Statute&amp;URL=0000-0099/0050/0050ContentsIndex.html">requires</a> business owners to publish their business names.&nbsp;</p>



<p>You’ll publish a local newspaper advertisement at least once in the county where your business is located.&nbsp;</p>



<h3><strong>Step 3: Complete the Fictitious Name form</strong></h3>



<p>You can complete the Fictitious Name Registration form by mail or<a class="link" href="https://efile.sunbiz.org/ficregintro.html"> online</a>. The form comprises multiple sections and requires the following information:&nbsp;</p>



<ul>
<li>Your fictitious name</li>



<li>Your business mailing address</li>



<li>Florida County of Principal Place of Business</li>



<li>Your <a class="link" href="https://1800accountant.com/blog/ein">EIN</a></li>



<li>Email</li>



<li>Owner information</li>



<li>Signature</li>
</ul>



<p>You can request a Certificate of Status for your fictitious name form, which certifies your fictitious name registration. A Certificate of Status also verifies the entity paid its fees through a specific date. This certificate is optional in Florida.</p>



<p>You can also request a Certified Copy of your fictitious name form. A Certified Copy includes a filed stamped copy of your fictitious name registration. This indicates your copy is a true copy and the correct copy the Division of Corporation possesses. Obtaining a copy is optional in Florida.</p>



<h3><strong>Step 4: Submit the Form</strong></h3>



<p>The final step to starting your DBA in Florida is to submit the form. You’ll submit these materials with a valid form of payment.&nbsp;</p>



<h2><strong>How much does a DBA cost in Florida?</strong></h2>



<p>There are <a class="link" href="https://www.dos.myflorida.com/sunbiz/forms/fees/#ficname">three fees</a> you’ll pay to obtain your DBA name in Florida:</p>



<ul>
<li>The first fee is $50.00 to complete a Registration of Fictitious Name.&nbsp;</li>



<li>The second fee is an optional $30.00 for a Certified Copy of the Fictitious Name Registration.</li>



<li>The third fee is an optional $10.00 for a Certificate of Status of Fictitious Name Registration.&nbsp;</li>
</ul>



<h2><strong>How long will it take to receive a DBA in Florida?</strong></h2>



<p>The exact time it will take to receive your DBA in Florida varies.&nbsp;</p>



<p>You have the option of receiving your fictitious name registration by mail, which can take a longer time to receive. It typically takes a shorter time to receive a DBA if you complete some steps online.&nbsp;</p>



<h2><strong>How long are DBA registrations valid in Florida?</strong></h2>



<p>DBA registrations are valid for five years after you apply. It expires on December 31st of the fifth year. You can renew your fictitious name by mail or online through Sunbiz.</p>



<h2><strong>Let Us Help You Start Your DBA in Florida</strong></h2>



<p>Establishing your DBA in Florida is exciting, but the process can be overwhelming, especially if you're just starting out. That's why so many Florida owners and entrepreneurs use 1-800Accountant, America's leading virtual accounting firm for small businesses, for their DBA needs.</p>



<p>Whether it's <a class="link" href="https://1800accountant.com/services/small-business-taxes">small business taxes</a>, <a class="link" href="https://1800accountant.com/services/business-tax-advisory">tax advisory</a>, or any of our professional accounting services, we have the solution you need at a price that works for you. Schedule a quick consultation – usually 30 minutes or less – to learn how we can help.</p>

Doing business as, commonly referred to as a DBA, is a great way to protect your small business interests. A DBA does this by helping your small business develop in a way that protects both your business name and legal name.&nbsp; Starting a DBA in Florida is quick and easy and will only take a [&hellip;]

Woman sitting under palm trees using a laptop with text "steps to start a dba in florida" overlaying the image.

start-dba-florida

4 Steps to Start a DBA in Florida

<p>A limited liability company, commonly called an LLC, is a flexible entity that can protect your individual assets without sacrificing control over your small business. It’s a popular legal structure to consider <a class="link" href="https://1800accountant.com/blog/complete-guide-start-business">when making your business official</a>. If you decide to form an LLC, there are things to prepare before formally starting your business, including an operating agreement.</p>



<p>An operating agreement is important because it outlines your LLC’s provisions, regulations, and rules. It’s also important so that members of your LLC can all know how the business is supposed to function. While a single-member LLC is similar to a sole proprietorship in that one person is responsible for everything, that's not true for many LLCs. An LLC operating agreement allows you to define each member’s role in the organization.</p>



<p>Read on for a high-level overview of LLC operating agreements.</p>



<h2>What is an operating agreement for an LLC?</h2>



<p>Your <a class="link" href="https://1800accountant.com/blog/business-entity-llc">LLC operating agreement</a> serves an important purpose. It’s a document that outlines how the LLC will be run and the rights and responsibilities of each member. It gives the owners of the LLC, known as “members,” a concrete plan for how they will operate the business together.&nbsp;</p>



<p>The agreement should include instructions for proceeding when some members are absent and the agreed-upon process for selling or terminating <a class="link" href="https://www.investopedia.com/terms/l/llc.asp#:~:text=A%20limited%20liability%20company%20%28LLC%29%20is%20a%20business,of%20a%20partnership%20or%20sole%20proprietorship.%201%20%EF%BB%BF" target="_blank" rel="noreferrer noopener">the limited liability company as a business</a>.</p>



<h2>Does my LLC need an operating agreement?&nbsp;</h2>



<p>Some states require you to submit an operating agreement before forming an LLC, while others don't.&nbsp;</p>



<p>If you don’t create an operating agreement, you’ll follow the default rules for LLC governance set by your state. Before forming your business, you should be fully informed about the state rules you must comply with.&nbsp;</p>



<p>A formal operating agreement may be more helpful for a multi-member LLC than a single-member LLC, as a single-member LLC won’t have any confusion about splitting up benefits or duties among members.&nbsp;&nbsp;</p>



<h2>What to include in an LLC operating agreement</h2>



<p>These are the key areas to address when constructing your LLC operating agreement.&nbsp;</p>



<h3>Member Ownership Percentage&nbsp;</h3>



<p>What percentage of the business does each member own? How will the stocks be divided? Some multi-member LLCs will split everything evenly among members, but that’s not always true. Establish a foundation for your collaboration with an operating agreement that clearly defines each member’s ownership percentage.&nbsp;</p>



<h3>Voting Responsibilities and Voting Rights</h3>



<p>Your operating agreement needs to describe how business decisions will be made. What decisions can be made unilaterally, and what decisions must be voted on? For decisions that require a vote, how will the voting happen, and who has the right to make a vote?&nbsp;</p>



<p>Many LLCs weigh votes according to business ownership, meaning members with a greater share of the company have a more significant share in the decisions.&nbsp;</p>



<h3>Powers and Duties of Managers and Members</h3>



<p>Some LLCs will select a manager to oversee operations who is not one of the company’s members, while other LLCs will be run entirely by members. Your operating agreement should clarify this and specify both the authority and the expectations of each manager and member.&nbsp;</p>



<p>What do each manager and member have the power to do, and what are their responsibilities to the company? Clearly defining each individual’s role and capacity will help your business grow and adapt while sidestepping unproductive issues over authority and decision-making power.&nbsp;</p>



<h3>Profit and Losses Distribution</h3>



<p>Once you’ve determined how business operations will be divided, you must define how the resulting profits and losses will be handled. Your operating agreement should include details about how profits and losses will be dispersed to members.&nbsp;</p>



<p>Profit and loss distribution can be determined based on each member’s ownership percentage, or there can be another system. This also depends on having clear and efficient <a class="link" href="https://1800accountant.com/services/bookkeeping">bookkeeping processes</a> for your business. You should have specific business bank accounts set up to streamline the process for efficient distribution of revenue and expenses.</p>



<h3>Meeting Rules</h3>



<p>All members should be able to look to the LLC operating agreement for instructions on when and how meetings will be handled. There should be rules regarding who can hold meetings, who will take minutes, and who sets the meeting agenda.&nbsp;</p>



<p>Not every state requires official member meetings or predesignated rules for those meetings.&nbsp;</p>



<h3>Buyout and Buy-Sell Rules</h3>



<p>Operating agreements should contain buyout and buy-sell rules. This will determine what will happen if the LLC is sold or if a member wants to sell or transfer their stake in the LLC. Do you plan on selling your company once it becomes successful?&nbsp;</p>



<p>Each member’s rights should be clearly outlined. Is any member free to sell off their ownership stake at any point? Including a right of first refusal in this section of the operating agreement may be helpful.&nbsp;</p>



<h2>How to create an operating agreement for an LLC?</h2>



<p>Once members have identified and agreed upon critical areas, the operating agreement should be drafted. Once approved, the operating agreement is a legal contract between LLC members, so it's essential to get it right.</p>



<p>Professional services are available that help LLCs create their operating agreement and formation services to make the business official.&nbsp;&nbsp;</p>



<h2>Benefits of having an operating agreement for an LLC</h2>



<p>LLCs can be organized in almost limitless ways. This allows you to set rules, which can be hugely beneficial.&nbsp;&nbsp;</p>



<p>If you’re going to set your own rules, however, there needs to be clarity about what those rules are. The operating agreement is the contract among LLC members establishing the basic rules you will follow. It protects members from personal liability, using default state rules, and should serve as guidelines for an LLC and its members.&nbsp;</p>



<h2>What Happens If You Don't Have an LLC Operating Agreement?</h2>



<p>You must submit your operating agreement before you can form your LLC in some states. In the states that do not require an operating agreement to form, you'll have to operate under their default rules.</p>



<p>Creating an LLC operating agreement is a best practice whether it's required in your state or not. With an operating agreement in place, you avoid potential legal issues, sidestep management difficulties, and define how disputes are handled instead of relying on your state.&nbsp;&nbsp;</p>



<h2>LLC Operating Agreement FAQs</h2>



<h3>Does an LLC operating agreement need to be notarized?</h3>



<p>No, an LLC operating agreement is not required to be notarized, but each member is required to sign the agreement for it to be finalized.</p>



<h3>Is an operating agreement required for an LLC?</h3>



<p>You won't be able to form an LLC without first submitting an operating agreement in states where it is mandatory. Other states do not require an operating agreement for LLCs.&nbsp;&nbsp;</p>



<h3>Is an operating agreement the same as articles of organization?</h3>



<p>No, an operating agreement and articles of organization are not the same, but both relate to your LLC. Articles of organization are submitted to the state while forming your LLC; an operating agreement isn't mandatory in every state during the formation process.&nbsp;&nbsp;</p>



<h2>Get Help From the Professionals</h2>



<p>An operating agreement is optional in some states, but every LLC should have one. Drafting an agreement can be overwhelming if you're starting out, which is why so many owners and entrepreneurs trust 1-800Accountant, America's leading virtual accounting firm for small businesses, for guidance on their LLC operating agreements.&nbsp;</p>



<p>Whether it's <a class="link" href="https://1800accountant.com/services/entity-formation">complimentary business formation</a>, <a class="link" href="https://1800accountant.com/services/business-tax-advisory">tax advisory</a>, or any of our professional accounting services, we have the solution your LLC needs at a price that works for you. Schedule a quick consultation – usually 30 minutes or less – to learn how we can help your small business.</p>

A limited liability company, commonly called an LLC, is a flexible entity that can protect your individual assets without sacrificing control over your small business. It’s a popular legal structure to consider when making your business official. If you decide to form an LLC, there are things to prepare before formally starting your business, including [&hellip;]

Paper titled "what is an llc operating agreement?" beside glasses and a calculator on a wooden table.

llc-operating-agreement

What Is an Operating Agreement for an LLC, and Do You Need One?

<p>It's a great idea to start a small business in Texas. The state offers everything a business owner could want: a diverse economy, a skilled workforce, and flourishing world-class cities that would make the perfect headquarters.</p>



<p>Whether you're in the planning stages or are nearing launch, there are a few steps you'll have to take to make your business official in the state. There are also fees and other vital details you should be familiar with before moving forward.</p>



<p>Use this blog as your free guide to starting your small business in the state of Texas.<br><br><strong>Why Start a Business in Texas?</strong></p>



<p>Some of the unique and compelling reasons to launch your small business in the state include:&nbsp;&nbsp;</p>



<ul>
<li>Texas ranks as<a class="link" href="https://gov.texas.gov/business/page/why-texas" target="_blank" rel="noreferrer noopener"> the best state</a> to start a business.&nbsp;</li>



<li>Texas has no corporate income tax or personal income tax.&nbsp;</li>



<li>Texas also has one of the largest workforces in the country.&nbsp;</li>
</ul>



<h2>How Much Does it Cost to Start a Business in Texas?</h2>



<p>Be prepared to spend a couple hundred dollars while setting up your small business in Texas. The exact cost will vary and depends if you use an optional expedited service, which has a fee.&nbsp;</p>



<h2>10 Steps to Starting a Business in Texas</h2>



<h3>Step 1: Business Idea</h3>



<p>The first step to starting your business in Texas is to develop your<a class="link" href="https://www.thebalancesmb.com/small-business-ideas-2951453" target="_blank" rel="noreferrer noopener"> business idea</a>. As you do this, envision how it will stand out from competitors and businesses in similar fields.&nbsp;</p>



<p>You can also write a<a class="link" href="https://www.sba.gov/business-guide/plan-your-business/write-your-business-plan" target="_blank" rel="noreferrer noopener"> business plan</a>. A business plan covers essential aspects of your business operation, such as a company description, company management, company organization, and funding.&nbsp;</p>



<p>There are two types of business plans used by small businesses: a lean startup plan and a traditional business plan. Either business plan will provide a structure that you can use to propel your small business from an idea to a reality.</p>



<h3>Step 2: Entity</h3>



<p>Second, you’ll want to select your business entity. This may be the most crucial step in the process because it will <a class="link" href="https://1800accountant.com/blog/6-tricks-to-choosing-the-best-entity-for-your-small-business">determine your business structure</a>. In Texas, you can choose from a:&nbsp;</p>



<ul>
<li><a class="link" href="https://1800accountant.com/blog/form-c-corp">C corporation</a> (also known as a C corp)</li>



<li><a class="link" href="https://1800accountant.com/blog/business-entity-llc">Limited liability company</a> (LLC)</li>



<li><a class="link" href="https://1800accountant.com/blog/business-entity-partnership">Partnership</a></li>



<li><a class="link" href="https://1800accountant.com/blog/business-entity-sole-proprietorship">Sole proprietorship</a></li>



<li><a class="link" href="https://1800accountant.com/blog/business-entity-s-corp">S corporation</a> (also known as an S corp)</li>
</ul>



<p>There are a few things to know about business entities that are unique to Texas. First, general partnerships don't require partnership agreements to be in writing; there’s also no requirement to file the partnership agreement with the state.&nbsp;</p>



<h3>Step 3: Name</h3>



<p>A name is one of the focal points of a small business, so it’s important to know the naming procedure within the state.</p>



<p>Naming your small business in Texas differs depending on the business structure you form as. For instance, the state allows you to operate a business using an assumed name, which doesn’t include a surname.&nbsp;</p>



<p>For sole proprietors, the assumed business name won’t include the sole proprietor’s surname, and for general partnerships, the assumed business name won’t include the surname of all the partners.&nbsp;</p>



<p>If you’re using an assumed name, you’ll file to receive the assumed name certificate with the county clerk where your business will operate. If you don’t operate your business in one location, you’ll file for the assumed name certificate in every county where you’ll operate.&nbsp;</p>



<p>There are fees to be aware of when naming your business in Texas:&nbsp;</p>



<ul>
<li>Name reservations within 120 days or a name renewal have a fee of $40.&nbsp;</li>



<li>An assumed name certificate has a fee of $25.&nbsp;</li>



<li>If you want an abandonment of an assumed name, there’s a fee of $10.&nbsp;</li>



<li>If you want a transfer of name reservation, there’s a fee of $15.&nbsp;</li>



<li>There’s no cost for a withdrawal of name reservation.</li>
</ul>



<p>Finding a unique brand name and a usable domain to go with it can be a time-sink for new business owners.<a class="link" href="https://businessnamezone.com/?partner=1800Accountant" target="_blank" rel="noreferrer noopener"> This free tool</a> from Business Name Zone generates name and domain combos for you based on your input – and it only takes a few minutes.</p>



<h3>Step 4: Registration</h3>



<p>Once you've decided on your business structure, you must register with the state of Texas. This is a crucial step as it legally establishes your business.</p>



<p>If you operate your small business as one of the following entities in Texas, you’ll complete a Certificate of Formation with the Texas Secretary of State:</p>



<ul>
<li>Corporation&nbsp;</li>



<li>LLC</li>



<li>Limited liability partnership</li>



<li>Limited partnership</li>



<li>S corp</li>
</ul>



<p>The Certificate of Formation must include your business name, the purpose of your business, the address of your registered office, and the names and addresses of your owners. There are a few <a class="link" href="https://direct.sos.state.tx.us/help/help-corp.asp?pg=fee" target="_blank" rel="noreferrer noopener">registration fees</a>, but those are dependent on your business entity.</p>



<ul>
<li>Certificates of formation for all entities except cooperative associations, limited partnerships, and professional associations have a $300 registration fee.</li>



<li>Certificates of formation for a limited partnership or professional association have a $750 registration fee.&nbsp;</li>



<li>Registration or renewal for limited liability partnerships has a fee of $200.</li>
</ul>



<h3>Step 5: Obtain an EIN</h3>



<p>Once you've filed your Certificate of Formation, you'll need to obtain an Employer Identification Number, also known as an EIN, from the IRS. This is like a social security number for your business and is necessary for filing taxes, hiring employees, and opening a business bank account.</p>



<h3>Step 6: Choose a Registered Agent</h3>



<p>Another requirement for starting a business in Texas is choosing a Registered Agent. This is a person or entity designated to receive legal documents on behalf of your business. Your Registered Agent must have a physical address in Texas and be available during regular business hours.</p>



<h3>Step 7: Licensing and Permits</h3>



<p>A Texas business license isn’t a requirement, but the state has other <a class="link" href="https://gov.texas.gov/business/page/business-permits-office#:~:text=General%20Business%20License%20The%20State%20of%20Texas%20does,the%20Secretary%20of%20State%20or%20county%20clerk%E2%80%99s%20office." target="_blank" rel="noreferrer noopener">license and permit requirements</a>.</p>



<p>If your business will specialize in certain industries, such as cosmetology or motor fuel quality, you’ll need a state license or permit. To receive a<a class="link" href="https://www.tdlr.texas.gov/licenses.htm" target="_blank" rel="noreferrer noopener"> license or permit</a> in these industries, you’ll work with the Texas Department of Licensing &amp; Regulation (TDLR).&nbsp;</p>



<p>A<a class="link" href="https://comptroller.texas.gov/help/sales-tax-registration/requirements.php/" target="_blank" rel="noreferrer noopener"> sales tax permit</a> is a requirement if your business:&nbsp;</p>



<ul>
<li>Leases, rents, or sells taxable goods</li>



<li>Provides taxable services; or,&nbsp;</li>



<li>Your business acquires taxable goods or services from out-of-state suppliers without a Texas Sales and Use Tax Permit</li>
</ul>



<p>Use tax is a requirement for small businesses under<a class="link" href="https://comptroller.texas.gov/taxes/sales/use-tax.php" target="_blank" rel="noreferrer noopener"> a few circumstances</a>. First, the buyer must consume, store, or use the goods or services in Texas, and the seller doesn’t charge sales tax in Texas.</p>



<h3>Step 8: Taxes</h3>



<p><a class="link" href="https://1800accountant.com/blog/texas-small-business-tax">Texas small business taxes</a> have a few requirements. First, there’s a Texas franchise tax, a tax that companies pay to conduct business within the state. This tax is one that varies according to the annual revenue a company receives. For the years 2022 and 2023, the<a class="link" href="https://comptroller.texas.gov/taxes/franchise/#skip-scroll"> franchise tax rates</a> are:</p>



<ul>
<li>Retail or wholesale businesses with more than $20 million in annual revenue pay a franchise tax rate of 0.375%.</li>



<li>Businesses other than retail or wholesale with more than $20 million in annual revenue pay a franchise tax rate of&nbsp; 0.75%.</li>
</ul>



<p>There are also tax-due thresholds which also differ according to annual revenue.&nbsp;</p>



<ul>
<li>Businesses with under $1,230,000 in annual revenue pay no franchise tax.</li>



<li>There’s an EZ Computation available for businesses under the $20 million total revenue threshold.</li>



<li>The EZ Computation Rate is 0.331%.</li>
</ul>



<p>Franchise taxes are due on May 15 unless the date falls on a holiday or weekend. Taxes are due the next business day if the due date falls on a holiday or weekend.</p>



<h3>Step 9: Open Bank Account</h3>



<p>Opening a business bank account lets you separate your personal finances from your business finances, making it easier to track expenses and income.</p>



<p>To open a business bank account in Texas, you will need to provide the bank with documentation that proves your business is registered, such as your Certificate of Formation or Certificate of Incorporation, your EIN, your business license, and other documents that the bank may require.</p>



<h3>Step 10: Insurance</h3>



<p>Business insurance in Texas is one of the last things to be aware of. The state doesn’t have a<a class="link" href="https://www.tdi.texas.gov/pubs/consumer/cb030.html" target="_blank" rel="noreferrer noopener"> workers’ compensation insurance</a> requirement. Commercial<a class="link" href="https://www.tdi.texas.gov/pubs/pc/pcgenliab.html" target="_blank" rel="noreferrer noopener"> general liability insurance</a> is also not a requirement, but it may be helpful to have as a business owner.&nbsp;</p>



<h2>Other Considerations&nbsp;</h2>



<p>There are other additional considerations to keep in mind before taking the steps to start a business in Texas.</p>



<h3>Business Grants &amp; Loans</h3>



<p>Texas offers loans on behalf of the U.S. Small Business Administration. Depending on your industry, you may apply for grants and loans from the following organizations:&nbsp;</p>



<ul>
<li>Non-Profit Lenders, such as BCL of Texas, LiftFund, and PeopleFund</li>



<li>Product Development and Small Business Incubator Fund (PDSBI)</li>



<li>Texas Angel Investors</li>



<li>Texas Workforce Commission</li>
</ul>



<h3>Additional Funding&nbsp;</h3>



<p>There are additional funding resources available for more specific<a class="link" href="https://gov.texas.gov/coronavirus" target="_blank" rel="noreferrer noopener"> industries within Texas</a>. For example, if your business works in the following industries, funding may be available with these Texas-based organizations: </p>



<ul>
<li>Texas Department of Agriculture (which may be helpful for farm and ranch producers)</li>



<li>Texas Film Commission (which may be helpful for the creative arts and film industries)</li>



<li>Texas Music Office (which may be helpful for artists and music industry professionals)</li>
</ul>



<h3>Business Location</h3>



<p>You may also want to think about your business location. For example, Texas is one of the largest states in the country, and certain areas specialize in certain industries. When considering your location, weigh how difficult it may be to source supplies within a region.&nbsp;</p>



<h2>Start Your Texas Business with 1-800Accountant</h2>



<p>Starting your small business in Texas is exciting. Still, it can also be nerve-racking if you're inexperienced or a little rusty. This is why so many owners and entrepreneurs trust 1-800Accountant, America's leading virtual accounting firm for small businesses, for their needs.&nbsp;</p>



<p>Whether it's <a class="link" href="https://1800accountant.com/services/small-business-taxes">small business taxes</a>, <a class="link" href="https://1800accountant.com/services/business-tax-advisory">tax advisory</a>, or any of our professional accounting services, we have the solution you need at a price that works within your budget. Schedule a quick consultation – usually 30 minutes or less – to learn how we can help your Texas small business.</p>

It&#8217;s a great idea to start a small business in Texas. The state offers everything a business owner could want: a diverse economy, a skilled workforce, and flourishing world-class cities that would make the perfect headquarters. Whether you&#8217;re in the planning stages or are nearing launch, there are a few steps you&#8217;ll have to take [&hellip;]

Graphic overlay reading '10 steps to starting a business in texas' on a background image of houston skyline with a pedestrian bridge and lush greenery.

starting-a-business-in-texas

How to Start a Business in Texas: 10 Steps

<p>Florida offers business owners a diverse economy, a large workforce, and several large cities to choose from to open a business. Starting an LLC in Florida can be a wise decision, but there are a few steps involved in the process.&nbsp;</p>



<p>There are also a few fees to know about and other important details you should know before starting the process. Here’s how to start an LLC in Florida.</p>



<h2>How to Form an LLC in Florida</h2>



<p>Forming an <a class="link" href="https://1800accountant.com/blog/business-entity-llc">LLC</a> in Florida comprises a few steps, but you’ll work with one department. The Florida <a class="link" href="https://dos.myflorida.com/sunbiz/start-business/efile/fl-llc/">Division of Corporations</a> is where you’ll apply for your LLC, send your documents, and wait for updates about your LLC application.</p>



<h2>How long does it take to form an LLC in Florida?</h2>



<p>It can take up to two weeks to form your LLC in Florida. The exact time will vary because you have two options for filing to form your LLC.&nbsp;</p>



<p>You have the option of e-filing to form your LLC, which offers several advantages:&nbsp;</p>



<ul>
<li>You’ll receive your filing confirmation by email at the address provided.&nbsp;</li>



<li>Your confirmation will be sent to you once the document is approved by the Division of Corporations.&nbsp;</li>



<li>If you file online, you won’t receive a confirmation by mail.</li>
</ul>



<p>If you file by mail instead, you’ll receive your confirmation by mail to the mailing address provided.</p>



<h2>How much is it to start an LLC in Florida?</h2>



<p>If you want to start an LLC in Florida, it’s essential to know the costs for different aspects of an  LLC. To form a new LLC in Florida, you’ll <a class="link" href="https://www.dos.myflorida.com/sunbiz/forms/fees/">pay at least four fees</a>. Two of the fees are optional, while the other two are required:</p>



<ul>
<li>There’s a required Filing Fee of $100.00.</li>



<li>There’s a required Registered Agent Fee of $25.00.&nbsp;</li>



<li>There’s a Certified Copy fee of $30.00, which is optional.</li>



<li>There’s a Certificate of Status fee of $5.00, which is also optional.</li>
</ul>



<p>The total fee for starting an LLC in Florida is $160.00.</p>



<h2>Do LLCs pay taxes in Florida?</h2>



<p>LLCs in Florida are <a class="link" href="https://www.investopedia.com/articles/personal-finance/101315/taxes-florida-small-businesses-basics.asp#llcs-in-florida">pass-through entities</a> that protect most LLC owners from paying individual taxes. Many LLCs in the state pay taxes as either disregarded entities or as a partnership.&nbsp;</p>



<p>State income taxes for incorporated LLCs are either 5.5% or the alternative minimum tax of 3.3%.&nbsp;</p>



<h2>List out steps to start an LLC in Florida</h2>



<p>Forming an LLC in Florida will take five steps.</p>



<h3>Step 1: Name Your LLC</h3>



<p>The first step in <a class="link" href="https://dos.myflorida.com/sunbiz/start-business/efile/fl-llc/instructions/">forming your LLC</a> in Florida is with your name. There are a few requirements for naming your business in the state of Florida:&nbsp;</p>



<ul>
<li>Your business name must be distinguishable if you search in the Department of State Records. You’ll want to <a class="link" href="http://search.sunbiz.org/Inquiry/CorporationSearch/ByName">search by name</a> before submitting your Articles of Organization document.</li>



<li>Your business name must include the terms: Limited Liability Company, LLC or L.L.C.&nbsp;</li>



<li>You won’t be able to use your LLC name until you receive a filing acknowledgment from the Florida Divisions of Corporations.</li>
</ul>



<p>Finding a unique brand name and (normal-looking) domain to go with it can be a bit of a time-sink for new business owners. <a class="link" href="https://businessnamezone.com/?partner=1800Accountant">This free tool</a> from Business Name Zone generates name and domain combos for you based on your input – and it only takes a few minutes.</p>



<h3>Step 2: Get an EIN</h3>



<p>The second step in starting your LLC in Florida involves getting an <a class="link" href="https://1800accountant.com/blog/ein">Employer Identification Number, or EIN</a>. </p>



<p>An EIN is free, and the IRS offers it to companies for tax purposes. There are several ways to <a class="link" href="https://1800accountant.com/services/ein-tax-id-filing">apply for an EIN</a>, but you’ll receive your EIN immediately by applying online.&nbsp;</p>



<h3>Step 3: Choose a Registered Agent&nbsp;</h3>



<p>Next, you’ll need a <a class="link" href="https://1800accountant.com/blog/small-business-need-registered-agent">Registered Agent</a>. Choosing a registered agent is one of the most essential parts of starting an LLC in Florida. The state has several recommendations and requirements for registered agents: </p>



<ul>
<li>An entity can’t serve as its own registered agent, but an individual or principal associated with the business can serve as the registered agent.</li>



<li>The registered agent must have a physical address in Florida.</li>
</ul>



<h3>Step 4: File Articles of Organization</h3>



<p>Whether you file online or pay by check or money order, it will take the same time for your Articles of Organization to be posted and processed. The state will process your order according to when it was received.&nbsp;</p>



<p>The registered agent must provide their signature on the Articles of Organization. If you’re planning on submitting the Articles of Organization online, the registered agent will provide their name in the signature in the signature block of the form.</p>



<p>After your Articles of Organization are accepted, you’ll receive a confirmation. You can receive it online or by mail.</p>



<h3>Step 5: Create an Operating Agreement</h3>



<p>The last step in creating an LLC in Florida is to create an operating agreement. An <a class="link" href="https://1800accountant.com/blog/operating-agreement">operating agreement</a> will contain information about your LLC, which will cover many aspects of your LLC.</p>



<p>An operating agreement may contain six sections:&nbsp;</p>



<ul>
<li>Introduction information</li>



<li>Membership information</li>



<li>LLC management information</li>



<li>LLC dissolution or member departure</li>



<li>Liability Clause</li>



<li>Other Provisions</li>
</ul>



<p><strong>The first section</strong> of the operating agreement will contain introduction information, such as the name, Articles of Organization, LLC duration, and Registered Agent information, LLCs in Florida aren’t required to list their purpose in the Operating Agreement, but they may do so if they choose.</p>



<p><strong>The second section</strong> will contain information about members. This includes the names of initial members, their ownership, how new members will contribute, how new members are added, how members receive profits and losses, and tax allocation and distribution.</p>



<p><strong>Third</strong>, you’ll provide information about LLC management. There are two options: a member-managed LLC (with a single managing member) or a hired manager that also works as an employee.</p>



<p><strong>Fourth</strong> in the operating agreement, you’ll provide information about what the LLC will do if a member departs the LLC. This information will cover:&nbsp;</p>



<ul>
<li>How and when members can leave and how they can leave</li>



<li>Liquidation procedures</li>



<li>Processes of buying back a member’s interest</li>



<li>Transferring member’s interest, including transfer restrictions</li>
</ul>



<p><strong>Fifth</strong>, the liability clause will cover limited liability for members. Finally, other provisions within the operating agreement will detail how the agreement can change over time. You may provide your members:&nbsp;</p>



<ul>
<li>A conflict of interest policy</li>



<li>A non-compete agreement</li>



<li>A non-disclosure agreement</li>
</ul>



<h2>We Can Help You Form Your LLC&nbsp;</h2>



<p>Forming an LLC in Florida can be a wise decision that can lead to success. It’s an easy way to provide liability protection while also ensuring your business grows in a thriving economy.</p>



<p>If you encounter difficulties forming your business entity, we’re here to help. Work with experienced professionals at 1-800Accountant for <a class="link" href="https://1800accountant.com/services/entity-formation">help with forming your business</a> entity today.</p>

Florida offers business owners a diverse economy, a large workforce, and several large cities to choose from to open a business. Starting an LLC in Florida can be a wise decision, but there are a few steps involved in the process.&nbsp; There are also a few fees to know about and other important details you [&hellip;]

Promotional image featuring the text "6 steps to start an llc in florida" against a backdrop of skyscrapers and palm trees under a clear blue sky.

start-an-llc-in-florida

How to Start an LLC in Florida

Excepteur sint occaecat cupidatat

JOIN NOW!

Your small business resource for accounting, bookkeeping, and taxes from our experts.<br /><br />

Accounting, Bookkeeping, & Tax Blog

Screenshot_2023-08-14_at_1.36_1.png

CLP_JoinUs_Testimonial_WomanBlueBackground_3.png

<p><strong>Huong T</strong></p>
<p>“Excellent first call, very informative. This is my third business … this time  I will ease the burden and use 1-800Accountant [for accounting]”</p>

<span>By clicking "Confirm My Appointment" you agree to our <a href="https://1800accountant.com/terms-of-services" target="_blank">Terms of Service</a>. This includes permission to communicate with you about your appointments via phone, email, or SMS. If you prefer to opt-out of SMS communications you may uncheck this box</span>