Top 10 Things Every Small Business Needs
A client recently asked, “What is the minimum paperwork that a small business needs?” The answer: It depends on the small business. A small business’s needs are going to vary depending on the type of business, the products/services being sold, the structure of the business, the goals and concerns of the business owner, the location of the business, and a whole host of other things. Since that doesn’t really answer the question, I’ve embraced my inner late-night talk show host and compiled a Top 10 list of the Top 10 Things Every Small Business Needs. Are you ready for it? Are you ready?!?! Here we go:
No. 10 of the Top 10 Things Every Small Business Needs:
Agreements. Whether they are service agreements, independent contractor agreements, subcontractor agreements, etc., most small businesses are going to need some sort of an agreement in place to operate safely (in the legal sense) and effectively. The type of small business you have will determine the types of agreements you will need to have in place. For example, as an attorney, I have a service agreement (called an Engagement Letter) with each and every client that makes it clear what I am going to be doing for the client, my fees, how the client can expect to be billed, what I expect or need from the client, my policies that affect the client, what happens if there is a disagreement between us, and so on and so forth. Most, if not all, small businesses that provide a service to their customers should, at a minimum, at least have a similar type of service agreement with their clients. It protects both the small business and the client.
Nos. 9, 8, & 7 of the Top 10 Things Every Small Business Needs:
Licenses. Specifically, Tax Licenses, Business Licenses, and Other Licenses. I cheated a little bit here and grouped these three together. Honestly, they are all equally important and depend largely on the nature of your small business. All licenses are of equal importance for the purposes of this Top 10 List. If you are selling a product or are performing a taxable service, then your small business might need a sales tax license. Depending on the industry you are in, you might need a business license. And depending on where your small business is located, some cities or counties require different types of licenses if you choose to operate a business or do business in that location. So, depending on your business, you may need 1, 2, 3 or more different types of licenses.
No. 6 of the Top 10 Things Every Small Business Needs:
Form 2553 (S Corp). This is the IRS form that needs to be filed if you want your small business to elect to be taxed as an S Corporation. Whether or not you need to file form 2553 is going to depend on whether it would make sense for you tax-wise to elect to be taxed as an S Corp.
No. 5 of the Top 10 Things Every Small Business Needs:
Insurance (General Liability, Workers Comp, etc.). Every small business is going to need some type(s) of insurance. The type of insurance your small business will need also depends on what type of business you are operating. Some businesses may simply require some sort of general liability insurance in order to protect the business and themselves. Other may need workers compensation insurance if they plan to hire any employees. Lawyers, doctors, dentists, and other professions that are commonly sued for malpractice, might need malpractice or errors and omissions insurance. So, the type of small business you are operating will determine the type of insurance policies you will probably need.
No. 4 of the Top 10 Things Every Small Business Needs:
Initial Resolution/Consent. Although this isn’t necessary (at least in Colorado) for all small businesses, it is usually a good idea to have an Initial Resolution or Initial Consent to Action when starting a small business in order to demonstrate that your business has adopted certain documents, like it’s Operating Agreement or Articles of Organization, and that you as the business owner have resolved to operate your business in accordance with those documents. Additionally, you might resolve to elect officers in the Initial Resolution. In Colorado, LLCs do not need to have officers, although they may choose to elect officers (i.e., a president, treasurer, or a secretary); so an LLC in Colorado may resolve to elect people in those positions. Additionally, if you have decided to elect to be taxed as an S Corporation, then you would want to document in that Resolution/Consent that you have resolved or consent to elect to be taxed as an S Corp. Those are just a few examples of what you could resolve to do in the Initial Resolution or Consent to Action.
No. 3 of the Top 10 Things Every Small Business Needs:
Form SS-4 (Federal Tax ID). IRS Form SS-4 Application for Employer Identification Number is the form that you file with the IRS to get a Federal Tax ID number (aka EIN or Employer Identification Number) for your small business. Even if you are not going to employ people right away, you will probably need an EIN to open up a business bank account. Most, if not all, banks require a business to have an EIN in order to open up a business account.
No. 2 of the Top 10 Things Every Small Business Needs:
Operating Agreement or By-Laws. Every LLC needs an Operating Agreement. Let me say that again in case you missed it: every LLC needs an Operating Agreement. Even if it is not required by statute (Colorado does not require it), it is still a vital internal document for your small business to have. An Operating Agreement is the internal document where the owner or owners (aka the members) agree on how the business is going to be operated, i.e., type and nature of business; what the business is going to do; how members are going to get paid; how distributions are going to be made; what will happen in the event of disagreement between the members; etc. All of this information is set forth in the Operating Agreement. Even if your small business is a single-member LLC, it is still important to have an Operating Agreement in place because you are still a business and you’ll want that evidence of operating your small business. By-Laws are the corporate equivalent to the LLC’s Operating Agreement. The By-Laws of a corporation serve basically the same purpose as the Operating Agreement of an LLC.
And finally…No. 1 of the Top 10 Things Every Small Business Needs: (drum-roll, please)…
Articles of Organization (or Articles of Incorporation). Every single LLC in existence must have Articles of Organization. I can say this with complete certainty because you will need to file Articles of Organization with the Secretary of State in order to create your LLC. Bottom line: if you did not file Articles of Organization, then you don’t have an LLC. Similarly, every corporation in existence must have Articles of Incorporation. The Articles of Organization or Incorporation are what brings the LLC or corporation into a legal existence. Without them, your small business, whether it is a corporation or an LLC, does not legally exist.
It is a
good great idea to consult with an attorney to make sure your small business has everything it needs to stay compliant with the law, protect the small business, and protect the business owners. Denver, Colorado business attorney Aiden H. Kramer with The Law Office of Aiden H. Kramer, LLC can help you set your small business up for success. Contact Aiden at (720) 379-3425 or firstname.lastname@example.org to get started.