Happy New Year, fellow dreamers and doers!
I hope your 2024 is off to a fantastic start. The start of a new year symbolizes new beginnings and opportunities for growth personally and professionally. It’s a time when we are motivated to take the leap.
If 2024 is the year you launch that business (you’ve done all the research, registered for all of the small business webinars, saved your coins, etc) or, if you know this year is the year to finally shore up your business’ foundation in preparation for your next level, you’re in the right place.
In this blog, we'll explore your options for establishing a new business and touch upon the new law to impact small businesses.
First Things First: Choosing the Right Entity for Your Business Model
One of the foundational decisions you'll make is selecting the appropriate business structure. It’s likely you are aware of the LLC, or Limited Liability Company, business structure because it’s often plugged as the right entity from various online experts, and it is a great option.
However, each structure has its own implications for liability, taxation, and management so it is important to take the time to understand the nuances of each and choose the one that aligns with your business goals and vision.
If you are just starting, meaning you are self-funding and it’s just you (or another person or two), your brain, your laptop and prayers, it is fine to start out as a sole proprietorship until you have evidence that you have a viable business idea and plan. If it’s you and another person, make sure to have a partnership agreement in place to create the foundation for the partnership.
Back to the LLC, it’s the most popular option for today's entrepreneurs for a reason. It shields your personal assets from business bumps and bruises and is flexible. But if you have big dreams to create the next big thing, you require big money, and your idea comes with a fair amount of risk, a Corporation may offer the structure, stability, and potential tax benefits you want. However, Corporations are less flexible and come with more paperwork.
Finally, if part of your mission is to support a specific cause that benefits a group of people, then a non-profit corporation may be the way to go. Indeed, for-profit corporations occasionally align themselves with a non-profit or charitable arm if part of their mission is to support a specific cause.
I hope it’s clear that your business structure selection is not one-size fits all - it must align with your business goals.
Follow the Rules
This year, a new law called the Corporate Transparency Act is shaking things up, especially for business entities formed after January 1st, 2024.
I’m sure you’ve seen the TikToks or Instagram and Facebook posts alarming the public about the “additional fees” to start a business in 2024. I even saw one video on IG that “An LLC Will Cost You $500/Day in 2024”. That description is misleading.
The quick high-level summary of the Corporate Transparency Act is that it was enacted to combat illicit activity including tax fraud, money laundering, and financing for terrorism by capturing more ownership information for specific U.S. businesses operating in or accessing the country’s market.
What does that mean for you? If you started your business after January 1, 2024, you will need to submit a Beneficial Ownership Information (BOI) Report to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN), providing details (details you’ve likely shared to open your business bank account, obtain an EIN, apply for business certifications) identifying the individuals who are associated with the company within 90 days of formation.
If you have started your business before January 1, 2024, you have until January 1, 2025 to comply. Failure to comply with the new regulation, or willfully violating the BOI reporting requirements may result in penalties of up to $500 for each day the violation continues. There is no fee for submitting the report.
If you need help with any of this, especially if there are several owner/operators of the business, you have a holding company, or any other unique circumstance, your friendly neighborhood lawyer (that's me!) can guide you through the process.
Schedule a time to chat here.
Don't forget to share this blog with your business friends. Cheers to 2024!