Stock Can Help Raise Money But At A Cost

If your new company is in need of capital, stock can provide you with the opportunity to raise money. Owners can then use this money to fuel business growth, allowing them to do things such as:

• Rent an office
• Purchase equipment
• Pay employees
• Pay debts

The downside, of course, is that incorporators are giving up a portion of the company when they issue stock. Each stock is worth a percentage of the company, as pre-defined by the board. However, the stock is also representative of the value of the company. Say, for instance, a new corporation issued stock at $1 per share. They decide to release one million shares. This means that they value the company at $1 million.

As a new company, this is likely not the case. Investors will request to see the company’s financials and realize that incorporators have overvalued the company. So, when a new corporation issues stock, it should be sure that the price per share and total shares are proportionate to the value of the company. Also, owners should remember that the more shares they issue, the more they will dilute their own holdings.

Common Stock V. Preferred Stock

If your new corporation is interested in issuing stock, you’ll also want to consider which type of stock to grant. Owners have the choice of issuing either common stock or preferred stock. Common stocks pay shareholders in both valuation and dividends. Rising share prices will create value for investors. Additionally, common stockholders receive proportionate votes on corporate issues, such as electing directors to the board.

Owners will want to keep this in mind when issuing stock because it can determine the future of the company. For instance, if one individual holds more than 50 percent of the shares that have been released, he or she can single-handedly control the company. So, for instance, if owners wanted to issue stock to raise capital, they should be careful not to provide investors with more than 50 percent of the shares. Otherwise, they’ll give up control of their new corporation.

On the other hand, there could be significant concerns about transparency were owners to hoard more than 50 percent of the shares. This could give the perception that each person’s vote is not equal and that those buying into the company will have no say in its direction because the owners are still in charge. This is a delicate balance that owners should be mindful of when issuing common stock.

The other option owners have is to issue preferred stock. When an individual owns preferred stock, they too own a share of the company. However, preferred stock pays a dividend that’s already been predetermined. The profits that a preferred stock pays are typically rather exorbitant and more substantial than the dividends that common stock pays. The other significant difference is that preferred stockholders do not vote on corporate matters.

The other significant difference between common stock and preferred stock should hopefully never have to come into play but is worth noting nonetheless. If the corporation were to go under and assets are liquidated, preferred stockholders would be able to redeem their shares before common stockholders. This means that preferred stockholders have a better chance of mitigating potential losses than common shareholders.

New corporations also do not have to issue one class of stock exclusively. Many new businesses choose to issue both common stock and preferred stock. The board of directors is in charge of issuing stock, although incorporators may need to provide a breakdown on the shares they wish to release on the Articles of Incorporation.

Is There An Alternative To Issuing Stock

Some owners may not want to give away ownership of the company but would still like to raise capital. In this case, owners may want to consider selling long-term debt in the form of bonds. When a company does so, it agrees to pay investors their money back, plus interest. For instance, a corporation could raise cash by issuing $1,000 bonds with a five percent rate. This means that the corporation will need to pay the investor $1,050 when the bond expires.  

Issuing debt could be beneficial because the government considers the interest that the corporation returns as a tax-deductible expense. Some investors may find bonds attractive because there is less uncertainty than with shares.

Bond-holders know precisely how much money they’ll give, how much they’ll receive in return, and when they can expect payment. However, bond-holders do not vote on corporate matters, so they do not play an integral role in defining the company’s direction. Another critical thing to consider is that the corporation can issue bonds at any time.

Technically, it can issue stock at any time it wants as well. But most corporations elect to only issue stock once, as doing so multiple times dilutes the value of shares that investors have already purchased. If the sole purpose is to raise capital for the company, new business owners could look into issuing long-term debt initially and then issuing stock at a later point when they are financially stable.

Key Reminders When Issuing Stock

If your company decides to issue shares, one of the other critical things to remember is the stock ledger. The stock ledger keeps track of every transaction of shares. It helps promote transparency and could prove beneficial for future investors. A new corporation will want to keep a detailed stock ledger that shows every purchase, sale, and distribution of shares the board has made throughout the company’s history.

The post Should Your New Corporation Issue Stock appeared first on DoMyLLC.com.

If you’re looking to incorporate a business, you should have an idea of the paperwork required to do so. Although paperwork requirements may vary from state to state, the documents listed below are some of the most commonly-required forms. By having an idea of what they’ll need to submit, young entrepreneurs can begin gathering the required information and preparing these forms so that they can incorporate and run their business without complications.

Paperwork Requirements For Starting A Business

If you are incorporating a business, there are many critical documents and paperwork requirements with which you’ll want to be aware. One of the most essential is the Articles of Incorporation or the Articles of Organization. The type of document that you must file will depend on the state in which you’re submitting and the kind of company structure you seek.

The state in which you file will likely require this document to contain information such as who your registered agent is and from where they will be operating. Business owners must also include the name of the company, the name of the members of the company and the intended structure of the company.

You should pay careful attention to the requirements set forth by the state in which you’re filing. States often have different requirements for the fees associated with filing, the preferred method of filing, and the information that is needed within the documents. Be sure to look further into your state’s initial filing requirements so that you are well-prepared before filing.

A perfect example of this is an Initial Report Filing. Annual business reports are necessary for a company to continue conducting business – more on that below. Initial Reports contain the same information as Annual Reports, except business owners file them immediately upon opening their company. However, only a handful of these states require companies to submit Initial Reports. Again, it’s vital that entrepreneurs pay close attention to their state filing requirements.

Paperwork Requirements When Expanding Your Business

If a business wishes to open an office in another state, they must file paperwork in the new state. However, companies will register as a foreign entity as opposed to a domestic entity. To do so, companies will likely be required to file a Foreign Qualification form. One of the most critical parts of these form is the Certificate of Good Standing or the Certificate of Status.

Business owners can obtain these documents from the state in which they registered domestically. These documents inform the new state that the company is in good standing, meaning they have filed paperwork promptly and are up-to-date on all fees. Once obtained from the domestic state, the business can move forward registering in the foreign state.

Paperwork Requirements For Operating Your Business

Depending on where you conduct business, you will likely have to file an Annual Report or Biennial Report with your respective Secretary of State’s office. States use these forms to ensure that businesses are operational. There are often strict deadlines associated with these forms. Failure to file promptly could put your business at risk of steep fines, and even the possibility of dissolution.

In most states, you cannot make changes to your registered agent information when filing your Annual Report. If you wish to make changes to your registered agent information, including the name of your agent or the address at which they operate, you will likely need to file a Change of Registered Agent form. However, this information can vary from state to state. It’s imperative that entrepreneurs meet the requirements set forth by the state in which they conduct business.

Paperwork Requirements To Dissolve Your Business

Many business owners believe that when it is time for them to close their business, they can merely walk away without any consequences. Unfortunately, this is not the case. Even when shutting down a company, business owners are required to file paperwork with the Secretary of State’s office.

There’s a good chance that the state in which you operate will require you to file Articles of Dissolution or a similar type of document. There could also be fees associated with filing this paperwork as well. Additionally, business owners are required to submit paperwork in states in which they’ve registered as a foreign corporation, not just their state of domestic corporation. Failure to do so could again subject your business to fees that you are liable to pay even.

Don’t Miss Any Critical Paperwork

Once you incorporate your business, paperwork will be something with which you must become accustomed. Not only is paperwork necessary to incorporate your business, but you’ll also likely need to file annual reports in the states in which you conduct business. If you wish to begin operations in another state, you’ll have to require paperwork there as well. You’ll also have to file paperwork when you make changes to your registered agent or seek to close your business.

However, when you’re trying to run the day-to-day operations of your business, it could become overwhelming trying to worry about completing paperwork with state governments on time. For that reason, you should consider hiring DoMyLLC, a third-party professional services company.

DoMyLLC has extensive knowledge of the paperwork requirements for starting, operating, and closing a business in all 50 states. No matter which state you conduct business, we are here to help guide you through the entire process. Not only can we help you complete the required forms, but we can also remind you of upcoming deadlines as well. At DoMyLLC, we handle your paperwork needs so that you can dedicate yourself fully to running your business.

The post Paperwork Requirements for Starting a Business and Keeping It Running appeared first on DoMyLLC.com.

Why Should You Open a Business Bank Account?

We often hear from owners of single-member LLCs or S-Corps, in which they are the only member. These individuals often express that they don’t feel the need to open a business bank account. They indicate that with online technology and smartphone apps, they can track their business transactions easily. However, we feel as though this is a significant mistake that new business owners tend to make. A business bank account typically provides a:

• Credit Card
• Savings Account
• Checking Account
• Merchant Services Account

Merchant services accounts allow companies to accept credit and debit cards as a form of payment. This is one of the most prominent benefits of opening a business bank account. If you plan on selling goods, this is likely a given. However, those selling services could also gain an advantage from a merchant services account.

For instance, imagine you form an LLC that provides consulting and marketing services. In the past, you may have requested that your clients pay you via PayPal, Google Cash, or wire transfer. With a merchant services account, you provide them with a much more convenient payment method.

A business account could also prove to be beneficial over your personal account because it offers limited personal liability protection. Your personal assets will never be at risk. Additionally, business accounts can help protect your customer’s information. For instance, many merchant services accounts go out of their way to preserve purchase information.

Secondly, a business account is significantly more professional than a personal account. Not only does a business account demonstrate professionalism to customers, but it also does so to employees. For instance, business owners could secure an employee credit card for those in the finance department, allowing them to handle day-to-day transactions. This would not be possible if you were to use your personal account.

Lastly, using a business account could protect your credit. Your company’s credit card may have a line of credit significantly more substantial than your personal credit lines. Plus, if you need to make a large purchase for your company, such as new equipment, you won’t have to tap into your personal credit line. Any late payments will impact the company’s credit, not yours.

What Do You Need to Open a Business Bank Account?

If you would like to open a business account, the first thing you’ll need is an Employer Identification Number. You can obtain this number from the Internal Revenue Service, which issues one of the numbers to each company in the United States. This number is exclusive to your company.

Realistically, you should obtain this number regardless of whether you plan to open a business bank account. The number is necessary to pay taxes and hire employees. However, it’s also required to open a business bank account. The bank officer will ask you to provide this number before processing paperwork. This is the bank’s way of ensuring that your company is compliant. It also links your company’s financials to your tax information.

Once you have secured your EIN, you can call or visit various banks. Banks could also ask you to provide other information, such as your Articles of Incorporation or your corporate bylaws. It would be in your best interest to have these documents on hand when visiting, just in case.

We also recommend that you be upfront with your banker when telling them about your business practices. This will allow your banker to hone in on the best accounts for your company. For instance, we do not believe that companies should manage things such as payroll, taxes, income, and expenses for the same account. Your banker can set up accounts that fit your business needs. Don’t have employees? No need for a payroll account – you get the picture.

What to Look for in an Account?

There are a couple of factors you’ll want to consider when determining which bank is best for your company. First and foremost, you should not limit yourself exclusively to your personal bank. Many entrepreneurs are enamored with their own bank and choose to open a business account there if nothing else other than convenience.

However, they could be missing out on excellent rates or perks when they fail to evaluate all options. Your personal bank could be the perfect starting point, but we also recommend that you assess numerous banks so that you can determine the best fit for your company. Each company’s situation is different, but some of the things you’ll want to consider when opening a checking or savings account include:

• Interest rates
• Introductory offers
• Credit rates
• Early termination fees
• Transaction fees
• Minimum account balance fees

If you plan to open a merchant services account, you’ll need to consider another set of criteria. For instance, you’ll likely want to determine the discount rate, which is the percentage that you’ll pay for each transaction. The discount rate is typically around three percent.

Similarly, business owners should compare the transaction fees, which represents how much they are charged on every transaction. Other criteria include the Address Verification Service fees, monthly minimum fees, and ACH daily batch fees.  

Speak with a Financial Professional

Opening a bank account for your business is a necessary step that owners should take immediately after incorporation. However, the process can be overwhelming, especially since entrepreneurs may not have any experience with business accounts.

The account that you open could have long-lasting implications for your company. We recommend speaking with an accountant or similar financial professional who can provide advice and guidance. This is an investment that many entrepreneurs find well worth making.

The post Opening a Business Bank Account appeared first on DoMyLLC.com.

C-Corporations Will File Under A Lower Rate

One of the most significant changes under the new business tax law is the fact the corporate tax rate dropped significantly. In year’s past, the corporate tax rate was 35 percent. Under the new tax code, the rate is 21 percent. This is a significant change that could impact how businesses conduct business. Retaining more of their profits could allow small business owners to invest in growth that would not have been possible before this year.

If you are a young entrepreneur who has recently started a company, you may not see any drastic changes quite yet because, if nothing else, many startups are not profitable in their first few years. But, the new tax code will be in place for at least the next decade. Factoring this rate into your business decisions could alter your long-term strategy.

Lastly, the fact that the corporate rate was reduced could impact how new business owners could choose to register their company. For instance, many small business owners elect to register as an LLC, which allows for pass-through taxation. However, any individual income earned more than $38,700 is taxed at a 22 percent rate.

So, some new business owners may find it more beneficial to form their company as a C-Corporation rather than an LLC because the tax rate is lower. Each individual’s situation could vary, and owners will want to consider dynamics such as double taxation. We recommend talking with an accountant or similar tax expert who can advise on which formation strategy is best. That’s because, as you’ll see in the section below, there are some new perks for LLC and S-Corp owners as well.

Some S-Corporations And LLCs Could Be Eligible For A Reduced Tax Rate

Under the new tax code, S-Corporation and LLC owners could qualify for a 20 percent deduction on “any income attributable to the entity.” However, the company must not be listed on a particular exclusions list. Generally speaking, any company whose sells to customers based on the reputation of the owner is excluded from this deduction. For instance, a small coffee shop would be eligible for the deduction but “Jane Doe’s Consulting” or “John B’s Financial Advice” would not. Excluded services and entities include:

• Health companies
• Consulting services
• Law
• Financial services
• Athletics
• Brokerage service industries

However, if the taxable income for an owner is less than $157,500 for single filers or $315,000 for joint filers after pass-through, they can still take the deduction. No one, regardless of the industry in which they work, can take the 20 percent deduction if income exceeds $207,500 for single filers or $415,000 for joint filers.

There Is No More Alternative Minimum Tax

In the past, the alternative minimum tax was a significant part of corporate taxation. Those who made more than the AMT exemption amount were required to calculate their taxes twice. Prior to the new law, five million Americans were impacted. Now, only an estimated 200,000 tax filers will be affected. Additionally, there is no longer an AMT for corporations. Contact your tax professional to see if you could potentially be someone impacted by the AMT.

Equipment Depreciates Faster

If you’re a small business owner who purchases expensive equipment for your company, you could be in luck thanks to the fact that the new tax code increases the rate at which items depreciate. Under the former law, business owners were required to amortize the cost of equipment over the useful life of the asset.

Under the new law, owners can fully deduct up to 1 million in equipment in the year in which the company purchased it. Those who have current tax liabilities and substantial fixed asset costs will benefit most from this change. The depreciation of assets is only in effect over the next five years, as it will phase out after 2022. Until then, business owners will find that they can expense nearly twice as much as they could previously.  

Owners Can No Longer Expense Transportation And Entertainment

If you’re a small business owner who frequently treated clients to concerts and sporting events, we have bad news for you. Whereas you could deduct these expenses in the past, you can no longer deduct them from your taxes. Your meals, however, remain 50 percent deductible, just as they were in the past. Additionally, owners can no longer deduct travel to and from work. This also includes bicycle commuting reimbursements, which were formerly allowed.

Family-Paid-Leave Credit

If you’re an employer who provides your employees with paid medical or family leave, you could benefit from a deduction over the next two years. In 2018 and 2019, employers can deduct up to 12.5 percent of the wages they pay during this time. Additionally, those employers who pay employees more than half of their regular salaries are eligible for an even larger credit.

Many stipulations determine who is eligible for this program, however. For instance, if an employee’s total wages exceed $72,000, employers will not be able to take the credit. Additionally, the policy that declares paid medical and family leave must be written in a document such as the Employee Handbook.  

Consult A Tax Expert

Taxes are already tricky for small business owners, but they will become much more challenging this year because of new regulations. We highly recommend that business owners contact a trusted tax professional to help guide them through the process. Licensed professionals can help maximize your return and profits, allowing you to invest more money in your company. They’ll also ensure you remain compliant with the new regulations which were put in place.

The post Tax Tips: How Will the New Business Tax Law Impact Small Businesses appeared first on DoMyLLC.com.