Business Formation
The paperwork that decides everything after it.
Entity type, registration, and compliance are four decisions that quietly control your taxes, your liability, and your fundability for the life of the company. Get them right once instead of fixing them under pressure later.
Why This Comes First
Most founders reach for a marketing plan before the entity is formed correctly, before banking and insurance are in place, and before there’s a repeatable process behind the offer. It works for a while — right up until a customer sues, a co-founder disagrees about ownership, or an investor asks for a cap table that doesn’t exist yet. Formation isn’t a formality to clear before the real work starts; it’s the load-bearing wall everything else gets built on.
Choosing Your Entity
LLC
Most first-time founders, solo operators, and small partnerships.
Liability protection with none of the double taxation — profit passes straight through to your personal return. Fewer formalities than a corporation, but you'll still want an operating agreement even in states that don't require one.
S-Corp
Profitable service businesses ready to split owner pay from distributions.
Not a separate entity type — a tax election on top of an LLC or corporation. Once profit clears roughly $60-80K, splitting a reasonable salary from distributions can meaningfully cut self-employment tax. Comes with payroll requirements you didn't have before.
C-Corp
Anyone raising outside capital or planning to issue equity to a team.
The only structure most VCs and institutional investors will fund. Double taxation (corporate profit, then dividends) is the real cost — worth it once you need a cap table, not before.
Sole Proprietorship
Testing an idea before you've made a dollar of real revenue.
Zero setup, zero separate filing — and zero liability protection. Your personal assets are the business's assets. Fine for a weekend project; a real liability the moment you have a real customer.
Partnership
Two or more owners who haven't incorporated yet.
General partnerships form automatically the moment you're doing business together, whether you meant to or not — and every partner is personally liable for the others' actions. An LLC with a multi-member operating agreement almost always beats a handshake.
The Formation Process
1. Choose your entity and state
Match the entity to what you're actually doing (see above), and default to forming in the state where you operate — "incorporate in Delaware" advice is for venture-backed C-Corps, not a first LLC, since you'll pay for a registered agent and foreign-qualification filings in your home state anyway.
2. Confirm your business name is available
Check your Secretary of State's business name database and the matching domain before you file — a name collision after formation means refiling.
3. File your formation document
Articles of Organization for an LLC, Articles of Incorporation for a corporation. Filed with your state's Secretary of State (or equivalent), not the federal government.
4. Get your EIN
Free, directly from the IRS (irs.gov) — needed to open a business bank account, hire, and file taxes. Anyone charging you for this step is charging for paperwork you can do yourself in ten minutes.
5. Write the operating agreement or bylaws
Governs ownership splits, decision-making, and what happens if a partner leaves. Not filed with the state, but the single most-skipped document — and the one that ends multi-founder relationships when it's missing.
6. Open a dedicated business bank account
Mixing personal and business funds ("commingling") is the single fastest way to lose the liability protection you just paid to set up — courts call it "piercing the corporate veil."
7. Register for the licenses you actually need
State, county, and city requirements vary by industry — a general business license, a seller's permit for sales tax, and any industry-specific license (contracting, food service, professional licensure).
8. Get insured before, not after
General liability at minimum; add professional liability, product liability, or workers' comp depending on what you actually do and whether you have employees.
What It Actually Costs
State Filing Fee
Roughly $50–$500 one-time, depending on the state and entity type — the single number that varies most, so check your specific state before budgeting.
Registered Agent
$100–$300/year if you use a service; $0 if you act as your own agent and have a real street address in the state of formation.
EIN
Free, direct from the IRS. There is no legitimate reason to pay a third party for this specific step.
Ongoing Compliance
Annual report and/or franchise tax fees recur every year you're in business — budget for them the same way you budget rent, not as a surprise.
Staying Compliant After You File
- —File your annual report and pay any franchise tax on time — most states administratively dissolve entities that miss it, silently reverting you to unprotected sole-proprietor status.
- —Keep your registered agent current — a missed service-of-process notice can mean a default judgment you never knew was coming.
- —Never pay a business expense from a personal account or vice versa — commingling is the fastest way to lose your liability protection.
- —Renew industry licenses before they lapse, and keep formation documents, the EIN letter, and the operating agreement/bylaws somewhere you can actually find them.
Two Ways To Get This Done
Have us handle it, or learn to do it yourself.
Jason Wilhite takes on a limited number of direct formation engagements each year. Prefer to build the skill yourself? Month 2 of the curriculum (“Starting Your Business the Right Way”) walks the same process, backed by real formation checklists and legal document templates in the Resource Vault.
Educational content only. Nothing on this page is legal or tax advice — confirm entity and filing decisions with a licensed attorney or CPA in your state.