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Step 2 - Preparation

Now that you have your business name and you know the type of products you want to sell it is time to make everything legal and prepare for the building stage.

Making Your Business Legal

Step 1. Deciding your Business Organization.

Sole Proprietorship
This is the easiest and least costly way of starting a business. There are likely to be fees to obtain business name registration, a fictitious name certificate and other necessary licenses.

Partnership
There are several types of partnerships. The two most common types are general and limited partnerships. A general partnership can be formed simply by an oral agreement between two or more persons, but a legal partnership agreement drawn up by an attorney is highly recommended. A partnership agreement could be helpful in solving any disputes. However, partners are responsible for the other partner's business actions, as well as their own.

Corporation
The corporate structure is usually the most complex and more costly to organize than the other two business formations. Control depends on stock ownership. Persons with the largest stock ownership, not the total number of shareholders, control the corporation. With control of stock shares or 51 percent of stock, a person or group is able to make policy decisions. Control is exercised through regular board of directors' meetings and annual stockholders' meetings. Records must be kept to document decisions made by the board of directors. Small, closely held corporations can operate more informally, but record-keeping cannot be eliminated entirely. Officers of a corporation can be liable to stockholders for improper actions. Liability is generally limited to stock ownership, except where fraud is involved. You may want to incorporate as a "C" or "S" corporation.

Subchapter S Corporations
A tax election only; this election enables the shareholder to treat the earnings and profits as distributions, and have them pass thru directly to their personal tax return. The catch here is that the shareholder, if working for the company, and if there is a profit, must pay herself wages, and it must meet standards of "reasonable compensation". This can vary by geographical region as well as occupation, but the basic rule is to pay yourself what you would have to pay someone to do your job, as long as there is enough profit. If you do not do this, the IRS can reclassify all of the earnings and profit as wages, and you will be liable for all of the payroll taxes on the total amount.

LIMITED LIABILITY COMPANY (LLC)
The LLC is a relatively new type of hybrid business structure that is now permissible in most states. It is designed to provide the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership. Formation is more complex and formal than that of a general partnership. The owners are members, and the duration of the LLC is usually determined when the organization papers are filed. The time limit can be continued if desired by a vote of the members at the time of expiration. LLC's must not have more than two of the four characteristics that define corporations: Limited liability to the extent of assets; continuity of life; centralization of management; and free transferability of ownership interests.

There are many companies online that will assist you in setting up your own Corporation. We personally used My Corporation. They were very fast, professional, and had great pricing.

Step 2. Obtain an EIN Number (optional)

"EIN", or Employer Identification Number, is defined as a nine digit number that the IRS assigns to organizations. The IRS uses the number to identify taxpayers who are required to file various business tax returns. EINs are used by employers, sole proprietors, corporations, partnerships, nonprofit associations, trusts, estates of decedents, government agencies, certain individuals, and other business entities. This is a VERY simple number to get!! You can call the toll free number, give them your details, and have a number in 5 minutes. You can go online and submit your form and have a number immediately. Or you can download a copy of the form online and mail the copy in. I prefer the phone or online method since you will get your number immediately. More information from the IRS can be found [here]

Step 3. File Your Business Name

You need an official business name that will be recognized by your state government. A Fictitious Name (or "DBA") is a very simple way to register your business. In some States, the DBA is obtained from your local County Office building for a minimal fee. ($10-$35 would be an average).

Step 4. Obtain a "Tax ID" or Reseller Certificate

In almost every State you are required to have a Tax ID. Some call it a Sales and Use Tax Certificate, some call it a Reseller Certificate, etc. It's the same thing. It allows you to collect Sales Tax on sales you make within your own State. This is done at the local State Tax Office. When you buy from a wholesale supplier, you will be asked to supply them with a copy of this certificate. They use it as proof to the IRS that they are not required to charge you tax on the products they sell you at wholesale.

Step 5. Open a Business Bank Account

If you’re going to do business, you must have a business bank account. You’ll need your Business Name papers and EIN Number. Most banks you can open an account for as little as $10-50.

Step 6. Send your Reseller Certificate Out

The only way to set up your accounts with a Drop Shipper or Manufacturer is by sending them a copy of your Reseller Certificate. If you do not have a fax machine available, you can use the Efax service right from your computer.

Congratulations if you have made it this far! Wasn't so bad now was it ;) You are completely prepared for the next step! Building your web site!

Step 3 - Building