Tuesday, January 24, 2017

Set up your partnership in six and a half (relatively) easy steps

Photo: Ambro

Twice in the last month or so, OAA has assisted Wisconsin partnership startups with what they need to do to form a limited liability corporation, or LLC. OAA is an LLC, which combines pass-through taxation (like a sole-proprietorship) with limited liability (like a corporation). We don’t provide tax or legal advice, but when a client asks, here's what I recommend: 
1.  GET AN ATTORNEY: Organize the LLC by creating an operating agreement with an attorney - this is essential so that you all have the same understanding from the beginning.  You never need a contract when things go well, but it's when they don't go so well, it keeps the playing field level and gives a "way" to dissolve, if needed. Saving hundreds by cutting corners on this step now can cost everything later.
2.  FILE LLC WITH DEPT. OF FINANCIAL INSTITUTIONS (DFI) & ELECT A REGISTERED AGENT: Most likely the attorney will do the initial creation of your LLC with the DFI.  But this is something you can do yourself.  If you know how the LLC needs to be organized, the attorney will determine this when creating the operating agreement, as a member-managed or manager-managed LLC, you can save attorney time by filing the LLC with the DFI yourselves.  It is a pretty straightforward online form.  The DFI charges $135 to create the company.  It's not a bad idea to have the attorney do the initial filing. However, he or she does NOT have to be your registered agent - for ongoing mail and correspondence.  When an attorney creates the LLC often they will name themselves as registered agent.  Be sure you are your own registered agent.  This way YOU will get the notices for your annual report and can file it or contract it out, as you wish.  DFI charges $25, at this time, for annual reports.  When you file with the DFI you will get "Articles of Incorporation.”
2B. FILE FOR SALES TAX NUMBER: This is the half-step. Skip it if you’re selling a service. If you’re selling goods rather than services, you will most likely need to file for a Sales Tax number with the State of Wisconsin because you will have to charge and then pay the sales tax on the product you sell direct to a customer. You won’t need to charge tax on items you sell to a wholesaler or retailer, but they’ll want your Sales Tax ID.
3.  SET UP A BANK ACCOUNT:  After you receive your Articles of Incorporation, use this information to obtain a bank account. Keep the income and expenses separate from your personal banking!!
4.  SET UP YOUR BOOKKEEPING/ACCOUNTING:  You will need to determine who will do your bookkeeping and select a CPA. If you want to do it "in house" I can help you set up the books, help you find a bookkeeper, or consult.  It's important to set this up correctly from the get-go to avoid future problems.  Employing someone? Anyone to whom you pay more than $599/year as a contract worker will get a 1099 from you at year end. Keep clear records and get a W-9 from anyone to whom you pay money before they get their first payment, if you can. 
5.  GET AN INSURANCE POLICY:  I have yet to meet a business or business owner that doesn’t need a BOP (Business Owners Policy - a general business liability insurance policy).  It’s a litigious world, we’re just doing business in it. 
6.  UNDERSTAND WHAT YOU DO WELL AND FIND THE RIGHT PERSON TO HELP WITH THE THINGS YOU DON'T.  In my experience with small business, owners have a "trade" a "skill" or an "idea" but that doesn't mean they are a good business owners and they get into trouble by not "knowing" they were supposed to do something.  Find people you trust, but don't give any one person all the keys to your business.  Checks and balances and frequent reporting are important. 

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