Intro

Welcome back to Thinkk's startup foundations course. In our last class, we nailed down our business idea. Now, it's time to make it official. Let's dive into the nitty-gritty of setting up your company. At Thinkk, we often get asked, "What's the best corporate structure for my startup?" The truth is, there's no one-size-fits-all answer. It depends on your specific situation, goals, and long-term vision. Let's break down the most common options:

Limited Liability Company (LLC)

This is the most popular choice among our clients, and for good reason. An LLC offers the best of both worlds: the liability protection of a corporation and the tax benefits of a partnership. Here's why we love LLCs:

• Liability Protection: If someone sues your business, they can only go after your business assets, not your personal ones. This means your house, car, and personal savings are safe.

• Tax Flexibility: LLCs are taxed like individuals by default, which can be simpler for small businesses. But you can also elect to be taxed as an S-Corp or C-Corp if that makes more sense for your situation.

• Accounting Advantages: With an LLC, you get to deduct your business expenses before paying taxes on your income. This can significantly lower your taxable income.

C-Corporation

C-Corps are typically the go-to for startups planning to raise venture capital or go public. They offer the strongest liability protection and allow for multiple classes of stock. However, they're subject to "double taxation" - the corporation pays taxes on its profits, and then shareholders pay taxes on their dividends.

S-Corporation

An S-Corp is similar to a C-Corp in terms of liability protection, but it avoids the double taxation issue. Profits and losses are passed through to the shareholders' personal tax returns. However, there are restrictions on who can be a shareholder, which can limit your ability to raise capital.

Nonprofit

While nonprofits can indeed make a profit, their primary purpose should be for the greater good. This structure comes with some unique benefits:

• Tax-exempt status

• Eligibility for certain grants

• Positive public perception

However, it also comes with some significant drawbacks:

• Most states require a board of directors, making it less ideal for solopreneurs

• Public disclosure of financial statements

• Restrictions on how profits can be used

At Thinkk, we typically recommend an LLC for most startups. It provides the flexibility and protection most businesses need without the complexity of a corporation. But remember, your situation might be unique. It's always best to consult with a legal professional before making this decision.

Registering Your Business

Once you’ve chosen the ideal corporate structure for your business, it’s time to get it registered. You might be tempted to use services like LegalZoom, but here's a little secret: it's much simpler (and cheaper) than they make it seem.

At Thinkk, we encourage our clients to do it themselves. Just go to your state's website and follow the instructions. It usually takes about 10 minutes and is often approved instantly. The last company I formed was approved by the state in 1 minute, without any expensive middleman fees.

Companies like LegalZoom spend most their revenue on fancy NBA partnerships, making their service unbelievably expensive. And in their checkout process, they try to upsell you to 100 things you don’t need. If you’ve ever used one of these companies, you’ll notice that you receive emails multiple times per week regarding the work they’re doing as your company’s Registered Agent.

Don’t be fooled - they send you these emails to make you believe there’s work being done. In most cases, there is absolutely no work to be done following the formation of the business, and there’s no reason to be billed on a yearly recurring for setting your business up. Seriously. Save your money and register your business yourself - you can even call your state and have them walk you through it.

Getting an EIN

Once your business is registered, you'll need an Employer Identification Number (EIN). Think of this as a Social Security number for your business. You'll need it for taxes, opening a bank account, and setting up various software and services.

The good news? Getting an EIN is free and easy. Most the time the state issues it with your business registration docs. But if not, just head to the IRS website and apply online. You'll typically get your EIN immediately.

Bank Account Registration

With your EIN in hand, you're ready to open a business bank account. This is a crucial step in separating your personal and business finances. You’ll also use your EIN for any accounting software you start, which we’ll cover in a later lesson. At Thinkk, we always stress the importance of keeping your business and personal finances separate from day one. It makes accounting much easier and can protect you in case of an audit.

Additional Considerations

Depending on your industry and location, you might need some additional permits or numbers:

• Sales Tax Number: If you're selling physical goods, you'll likely need this. You’re supposed to collect sales tax in any state you do significant business in.

• Reseller Permit: This allows you to buy goods for resale without paying sales tax. This is important, because most states have sales tax ranging from 5 to 15%. You don’t want that eating into your margins.

• Industry-Specific Permits: Some industries, especially food and drug, have additional regulatory requirements. Do your own due diligence to make sure you’re compliant.

DBAs (Doing Business As)

A DBA allows you to operate under a name different from your legal business name. At Thinkk, we've found DBAs useful for a few reasons:

• Testing different branding

• Running different divisions under one company

• Shortening long legal names for better marketing

For example, we started a health company called "One True Health & Fitness LLC," but we used the DBA "OneTrue" for all our branding. It's not necessary, but it can be a useful tool in your business toolkit.

Trademarks and Patents

If you've got unique intellectual property or a really catchy name, you might want to consider registering a trademark or patent. This can protect your brand and innovations from copycats.

At Thinkk, we've seen firsthand how valuable this can be. Even if you've been using a name for years, someone with a registered trademark can potentially force you to change it. It's better to be proactive and protect your brand early.

From an owner’s perspective, owning a trademark may also let you get the Social Media handles and domains you’re looking for. If you find that someone else is using your trademarked name, most platforms have channels through which you can gain access to them by submitting your relevant paperwork.

Wrapping Up

Setting up your company might seem like a lot of paperwork and legal jargon, but it's a crucial step in turning your idea into a real business. At Thinkk, we've guided countless startups through this process, and we always emphasize doing it right from the start.

Remember, the structure and foundation you lay now will support your business as it grows. Take the time to do it properly, but don't let it bog you down. The goal is to get your business up and running so you can start serving customers and generating revenue.

In our next class, we'll dive into one of my favorite topics: building your brand. Get ready to make your mark on the world!