Training 02 -  Business Entity

Local Business Licenses

 

Since each city has its own application, filing and registration requirements, you’ll contact the appropriate office in your city, mostly likely the city clerk. Your county will require a filing of a “DBA” or doing business as statement. This is usually filed at the county recorder’s office in your county. This should be done prior to filing for a city license.  You should have already determined how you will operate your business, as a sole proprietor, a partnership, a LLC or corporation. It’s not uncommon to start as a sole proprietor for a short term and then change to an LLC or Corporation. 

Business Name

 

Selecting a business name is a very personal choice. You can be creative in your marketing name and your "DBA", but it is wise to have a more conservative neutral name that does not have the words CBD, Hemp or Cannabis in it. Having such words in your name will make it harder to open accounts, collect money and take part in advantageous banking and financing programs. Consider using words like health, well being, and other health related terms rather than cannabis terms. 

Select your business structure

 

You should consult with a business attorney, CPA, or tax consultant when deciding what business structure is right for you. You’ll complete and file the appropriate form and pay a filing fee. Many people start off as Sole Proprietorships and convert to another form later but based on your business experience and how you intend to build out your business, you may select another form from the star.

 

The 4 most common types of business entities are (in summary):

 

Sole Proprietorships

  • Owner remains personally liable for lawsuits filed against the business.

  • No state filing required to form a sole proprietorship.

  • Easy to form and operate.

  • Owner reports business profit and loss on their personal tax return.

 

Partnerships

  • Partners remain personally liable for lawsuits filed against the business.

  • Usually no state filing required to form a partnership.

  • Easy to form and operate.

  • Owners report their share of profit and loss in the company on their personal tax returns.

 

C- Corporations

  • Independent legal and tax structures separate from their owners.

  • Help separate your personal assets from your business debts.

  • No limit to the number of shareholders.

  • Taxed on corporate profits and shareholder dividends.

  • Must hold annual meetings and record meeting minutes.

 

S- Corporations

  • Independent legal and tax structures separate from their owners.

  • Help separate your personal assets from your business debts.

  • Owners report their share of profit and loss in the company on their personal tax returns.

  • Limits on number of shareholders, who must be U.S. citizens or residents.

  • Must hold annual meetings and record meeting minutes.

 

Your corporation is born when the Articles of Incorporation are filed with the appropriate office in your state, accompanied by required filing fees. Accelerated incorporations or same-day filings may be available in your state.

 

The same principles apply to forming a Limited Liability Company (LLC) or a Limited Liability Partnership (LLP).

 

Setting up your entity

 

An entity is a legal fiction that allows a business to take on a separate existence, apart from its Owners, even though the Owners still control the business. This prevents creditors from seeking the personal assets of an Owner in the event of legal action.

 

In order to secure a business license, your proposed business name must not currently be in use. You can check this through your state Department of Taxation, or though the US Patent and Trademark Office.

 

If you already have an LLC or corporation, based on your circumstances, you can add a DBA to your existing entity. Check with your legal and accounting advisors.

Business structures

 

As indicated above, the differences between business structures are based on taxes, liability, and administrative burden. These core issues will help you understand the advantages and disadvantages of each type of structure.

 

Taxes:    You will be taxed, but how many times? Certain structures are called pass-through entities, and income and losses are literally passed through from the business to the individual for tax purposes. Other structures form a separate tax entity; when earnings are distributed, the owner is taxed again on income.

 

Liability:      Who’s liable for the possible damages and debts incurred by your business, say, in auto accidents? Some business structures will limit your liability to your investment in your business; others will make you and your personal possessions liable for the damages and debts of the business. You can lose everything. Your company can go bankrupt, and creditors can still seek your personal assets.

 

Administrative burden:     Each structure has its own requirements regarding filing of taxes, articles of incorporation, etc., and is monitored by both Federal and state authorities. In some structures this burden is heavy.

Here are the typical steps involved in setting up a corporation:

 

Reserve a business name with the Secretary of State.

File Articles of Incorporation – this can cost $85 to $500 or more, depending on state; check thecompanycorporation.com for details.

 

File for Federal and State Tax Identification Numbers – with the FEIN form; you’ll need to buy a “corporate kit” with seal and shares.

 

File for trade name – your business and trade names are different, so that your business can operate more than one location, or even different enterprises, with different trade names; your business name should not include the trade name.

 

Fill out a sworn statement registering the name and mailing address of the business, name and address of each owner, and the FEIN and state incorporation or registration number if needed.

 

You may need to place a classified ad in the local newspaper, with an official announcement that you, acting under your corporate name, intend to operate a business “also known as” your trade name.

 

The types of federal taxes you will pay may include: income, federal income tax withholding, Social Security, Medicare, FUTA, excise, etc. The Internal Revenue Service can be contacted for information on tax matters at 800-829-1040 or online at www.irs.gov. The IRS issues a variety of publications and other aids to assist you in complying with tax laws, including forms.

 

The procedure for acquiring a state tax number is also specific to your state. The types of state taxes you pay may include: tax on income, sales, capital gains, unemployment, etc. Contact your state revenue office either online or by calling its toll-free number. Request any publications available on state tax matters, as well as forms.

 

Most counties and local governments also levy taxes that you are responsible for paying. Contact your county and local governments for information on these matters and forms.

You may need an attorney to help you accomplish all the above tasks; you should also obtain an accountant to assist you in setting up your corporation for operational and tax efficiency. The costs incurred by engaging these two professionals will be more than offset by the advantages gained in using their expertise.

 

Assumed name certificate (DBA)

 

No matter what your business structure, you must file an assumed name certificate (also called trade name certificate, Fictitious Business Name Statement (FBNS), or DBA- Doing Business As - registration) with the appropriate governmental office, usually the county clerk; you may also be required to file at the state level and/or the city level. The purpose of this filing is so that the general public will be informed of the registered agent for a business and where official contact with the business can be made. This filing is usually done with the county clerk’s

office in your county.

 

Legal status of a MioSantéUSA shop

 

As has been indicated in this manual, The MioSantéUSA and World Canna Health and you share common goals, abide by common principles, and ultimately exist on some level for each other’s benefit. But we are not acting in the capacity or role of employer and employee, principal and agent, or general and limited partner.

 

We are a licensor, and you a licensee of intellectual property. This is an interdependent relationship, as we depend on each other. We are better together than separately. We must stay loyal to each other, and maintain a strong bond based on mutual respect, transparency and open communication.

 

Tax ID Number

 

Apply for a Federal Employer Identification Number (FEIN), also known as the Tax Identification Number (TIN), this is a unique nine-digit number used by the Internal Revenue Service (IRS) to identify business entities operating in the United States. When the number is used for identification rather than employment tax reporting, it is usually referred to as a TIN; for reporting employment taxes, as a FEIN. You should do this after you have settled on your final business form. 

 

Like the Social Security Number assigned to individuals, FEINs are used by employers, sole proprietors, corporations, partnerships, non-profit organizations, trusts and estates, government agencies, certain individuals and other business entities. The IRS uses this number to identify taxpayers who are required to file various business tax returns. Employers may choose to either obtain a FEIN or use their Social Security Number for the purpose of reporting taxes withheld on behalf of their employees.

 

A FEIN is usually written in the form 00-0000000, and a Social Security Number in the form 000-00-0000, to differentiate between the two. FEINs do not expire but only identify businesses.

 

Nonprofit organizations need FEINs to apply for an exemption from federal income tax. This exemption is terminated if annual reports are not filed. To maintain a group exemption letter, the central organization must submit an annual report, at least 90 days before the close of its annual accounting period.

 

For additional information about a FEIN number or apply online visit the US Internal Revenue Service website at  http://www.irs.gov/Businesses   Click the Small Business & Self Employed link on the left of the screen.