You may have considered starting a consulting firm if you are highly skilled, experienced, and knowledgeable in your field. A consulting business is a great career choice for those who wish to use their skills and knowledge while still enjoying the freedom and flexibility of being self-employed. You can achieve your dreams even if you do not have any experience in the field you are interested in. Hard work, education, and training will help you to meet the legal and professional requirements.
Today’s blog post will cover the legal aspects of starting a business consulting and the nine steps that you must take to ensure your success.
Start Your Business in 9 Easy Steps
There is no single-size-fits-all process to start a consulting firm, but there are certain tasks that need to be completed for the majority of consulting types. This is a list of the most common tasks that consultants must complete when they launch their business.
Step 1: Choose a business entity type
The IRS and the state will consider a consultant to be a sole proprietorship unless they form an LLC or Corporation. The income tax obligations for sole proprietorship business activities are passed through to the owner’s personal tax return. In addition, the owner is responsible for self-employment taxes on the business profits. It is simple to operate as a sole proprietor, but the owner’s assets (home, vehicle, retirement account, etc.) are at risk. at risk. Both the business and its owner will be considered as one legal entity and pay taxes. If the consultant is sued or unable to pay his or her business debts, then the consultant’s property and personal finances can be used as a means of settling the legal debts or financial obligations.
The consultant who chooses to create an LLC or C Corporation gains a legal shield between his consulting company and his personal assets ( corporate veils). This protects the owner of the business from having their personal assets used to pay off the debts of the company.
Many consultants who run a small business (usually a one-person operation) choose the business structure. Administratively, it is easier, more convenient, and cheaper to maintain and organize an LLC than a Corporation.
A consultant who forms an LLC may consider electing S Corporation. The profits and losses of an S Corp are passed through to owners’ personal income tax returns. However, only the wages and salaries paid to consultants by the LLC will be subject to self-employment taxes. The rest of the profits (paid out as distributions), are subject to income taxes but not self-employment taxes. Consultants who want to reduce their self-employment taxes may find this attractive.
It’s important to understand both the legal and financial implications of choosing an entity type for your business. Consult with a lawyer and accountant in order to fully grasp all advantages and disadvantages. Consider using CorpNet’s Business Structure Wizard to start your research.
You should consider getting insurance for consultant to protect yourself and your business from unseen risks. Follow these steps to get consultant business insurance online.
Step 2: Select Your Business Name
Some consultants include their first and last names in their business names. Some choose to use a fictional name in order to market their businesses.
The Right Path Life Coaching Services is a creative name that Danielle could use. She would need to file a fictitious business name registration with the state or local government to obtain permission to use it.
When registering a business, the LLC or C Corporation business name is automatically registered.
It’s important to verify that the name of your business is not already in use by another company. Corpnet provides a Free Corporate Name Search Tool that can help you determine if the business name you want to use is available in your area.
Step 3: Select a registered agent
The registered agent must be a person who is authorized to accept legal and government notices on behalf of a company. The registered agent’s physical address must be in the state that the consultant is registered. Consultants can prepare for expansion and growth by choosing a registered agency, such as Corpnet, which is licensed to offer its services in 50 states.
Step 4: Register your business with the state
The state must receive the necessary paperwork to register an LLC, incorporate or form a consulting firm. Articles of Organization are required for an LLC. Articles of Incorporation are required for a Corporation. Other filings are also required depending on the state or business structure.
No paperwork is required for sole proprietorships. They do have to file a DBA if they want to use another business name than the one which includes their legal first and last name.
Costs and requirements for registering a business differ from state to state. Information about the requirements in each state can be obtained from the Secretary of State or equivalent agency. Online forms and details are available for most states. Consultants who wish to register a company can do so on their own or ask a third party, such as CorpNet, or an attorney to complete the paperwork.
Step 5: Get an EIN
Even if the consultant does not intend to hire employees, they might still need an EIN (Employer ID Number). The IRS issues an EIN, which is nine digits long and is used to report taxes and for other purposes. Before opening a business account, most banks and financial institutions will require you to have an EIN.
Step 6: Open a Business Bank account
Separating business finances from the personal finances of business owners is one of the most important compliance obligations that come with LLC and Corporation business structure. Separating personal financial records and activities from business finances shows that the business owner is not the legal entity of the business. This reduces the chance that a consultant’s property and personal accounts will be seized in the event of a business lawsuit or financial difficulty.
Step 7: Applying for business licenses and permits
Different types of permits and licenses may be required by the local municipality, county or state. There may be different types of licenses and permits required by the state, county or local municipalities. You should know what you need to operate legally so that your consulting firm is compliant. CorpNet offers service packages that will help you determine the licenses and permits your business needs (no matter where you are located in the 50 states). We can prepare and obtain these licenses on your behalf.
Step 8: Create templates for proposals and contracts
Consultants should describe clearly the services that they will offer to their clients, including details on each party’s responsibility and how services will be provided, priced and billed. Software options for creating templates can be found. These can then be tailored to each client. Some consultants use a signature line to turn a proposal into a contract after the client has signed off. Some consultants create a proposal and then issue a separate contract that summarizes the information and provides additional details about the business relationship and payment terms.
Software for proposal and agreement creation simplifies the legal document generation process for consultants. It’s important to consult an attorney for the best advice to make sure that your contracts are fair and thorough.
Step 9: Stay on top of your business compliance obligations
Many businesses have ongoing compliance obligations. It’s important to know what you need to do to remain in good standing. This includes everything from filing an annual tax report to renewing your business license (possibly for an LLC or Corporation). You can get help from an attorney or accountant to identify what’s needed.