Business Startup Checklist: Corporations

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1

Get New ID Numbers

Your new corporation requires new federal and state ID tax numbers. Your corporation is never allowed to use your social security number or your prior tax ID number as its own tax ID number, and only rarely are you allowed to transfer your existing other business tax numbers to the new corporation. I strongly suggest you coordinate obtaining these numbers with your attorney and/or CPA, since failure to get all your new numbers will create major headaches with any number of federal and state tax and regulatory agencies.

2

Establish New Bank Accounts

Your new corporation requires a new corporate bank account. You cannot use your existing personal bank account for the corporation, since that would be considered a "co-mingling of assets" that can destroy the tax and limited liability benefits of being a corporation. Your existing business bank account cannot simply be renamed, since that account is associated inextricably with your social security number and/or previous tax ID number, and your new corporation is required to have its own tax ID number.

3

Set Up Payroll System

Corporations are not like a one-person sole proprietorship or LLC, where you write yourself periodic checks and make quarterly estimated tax payments. You are now an employee, and therefore the corporation must withhold payroll taxes from your paycheck, concurrently pay its own share of payroll taxes, and file quarterly and annual payroll tax returns. Failure to withhold and pay payroll taxes in a timely manner has serious penalties for which the corporation does NOT have limited liability - anyone who can sign a check for the corporation is personally liable. If you are not experienced in payroll issues, I strongly suggest you hire a payroll company to complete these duties for you (I use Paychex for my corporation).

4

Transfer Licensing & Permits

You will need to change your business license, and any government permits needed to operate your business, to the name of the corporation. If you have a professional license (dental, contractor, etc.) and your state allows you to practice that profession as a corporation (I hope you checked this before incorporating), you may also have to register with the state licensing board that you are now operating as a corporation.

5

Transfer Vehicle & Equipment Registrations

Unless you have a formal lease arrangement with the corporation, you need to change the registration of tangible business assets to the corporation (such as vehicles and registrable equipment). If a tangible asset hasn't been put in the corporation's name, and it is involved in an accident, you can be held personally liable for your responsibility as owner.

6

Transfer Name Registrations

You also need to formally assign your fictitious business name and trademark registrations to your corporation. If you do not do so, any actions taken under that name or mark could be attributed to you personally (it's a matter of public record). Also, this formal assignment of the name to the corporation is required to permit the corporation to use that name. For example, the bank will require proof that this formal assignment has occurred before it allows you to set up a new corporate bank account using that fictitious business name.

7

Notify Customers & Insurance Panels of New Name & Tax ID Number

Payments to your business (such as capitation payments and insurance reimbursement for patient treatment) need to be made in the name of the corporation to avoid the "co-mingling of assets" problem. Although some banks permit deposit of 3rd party checks (checks made to you personally but deposited directly in the corporate account), many do not. Dentists and doctors: transferring your capitation and PPO contracts to the corporation can take anywhere from a few days to six months, so you need to get started the process immediately after the corporation is formed and you have your federal tax ID number. Also, if your payor gives you a 1099 at year-end for payments made, you want that 1099 directed to the corporation rather than you personally. If you get a personal 1099, you need to give a personal 1099 to your corporation for that amount; otherwise, you might be subjected to an unnecessary tax audit for unreported income.

8

Change Account Names with Vendors & Service Providers

Your vendors and service providers should convert your billings to the corporate name (e.g, your premises lease, equipment leases and vendor accounts), although they are not required to do so, to maintain the limited liability protection of your corporation. Insurance policies also need to have the corporation's name included, otherwise claims against your corporation may not be covered. You will also want to convert your business credit cards and lines of credit under the name of the corporation.

9

Establish New Credit Cards and Credit Lines

If you have business credit cards and lines of credit and your lenders will not allow you to convert them the name of the corporation, you will need to obtain new ones. Again, the purpose is to avoid the "co-mingling of assets" problem. If your corporation has assumed the prior business debts along with the assets, it can pay those old debts - but (for limited liability purposes) that assumption should only give you, and not the creditor, the right to require the corporation make payments.

10

Convert to "Corporation" Public Persona

The limited liability benefits of being a corporation are lost if you don't represent to the public that your business is a corporation. Therefore, to the extent you used your personal name as your public persona, you need to transfer that persona into the name of the corporation. We're talking web pages, telephone and internet directories, advertising, signage, business cards, letterhead, billing statements ... everything!

11

Disclaimer - Legal Stuff

IMPORTANT: This Legal Guide is made available for educational purposes only. There is no attorney client privilege between you and the attorney author. This Legal Guide is not a substitute for competent legal advice from a licensed attorney that specializes in this area in your home state and with whom you have an attorney client relationship. Also, law changes frequently and varies from jurisdiction to jurisdiction. The information and materials provided are general in nature, and may not apply to a specific factual or legal circumstance described in the question. Copyright 2011 by Robert W. Olson, Jr. - all rights reserved.

Additional Resources

Tax Comparison: C vs. S Corporation

Corporate Formalities: Protect Your Tax and Limited Liability Benefits

Safely Choose a Tradename for Your Business

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