Starting a Business
Choose and Obtain Your Business Name
Choosing a business name is another important decision to make when creating a new business. Most people think about the product or service they will be providing, but it’s important to consider legal aspects of choosing a business name.
An important distinction to understand is the difference between the legal name of your business and the name you will use when conducting business.
Business Entity Name
- If you choose to create an entity that is legally separate from the individuals who own or operate the business, you will need to form a business entity. A business entity name is simply that, a name, a way to identify a business entity. A business entity is legally a “person” under the law. It’s important to understand that the business entity name may or may not be the same name as your Fictitious/DBA name.
- Kansas law requires that all business entity names must be “distinguishable on the record”. In other words, the name must be different enough from other names on file with the Secretary of State’s office that one entity can be identified from the other. It’s important to understand that Kansas law doesn’t preclude the name of one business entity from being “deceptively similar” from another entity. The “name availability guidelines” clarify that distinction. (Link for name availability guidelines: https://www.kansas.gov/businesscenter/index.html?link=name_avail)
- Remember, the creation of a legal entity is a method to separate an individual person from the individuals who own the entity. Just because someone can give their business entity a name that is deceptively similar to the name of your business entity, doesn’t mean they have a right to advertise or hold themselves out to the public with that name. Issues such as trademark name may limit the use of the name you select for your business entity.
Check Name Availability
- You should not begin using a business name until you are certain that it is available for use. A business name is not available if it is already being used by an existing business on file with the Office of the Kansas Secretary of State.
- Once you have an idea of what name you want for your business, you may check to see if it is already taken by performing a name availability search.
- A name may also be reserved to ensure availability. A name reservation is not required and is effective for 120 days from the date of filing.
Fictitious or Doing Business As (DBA) Name
The name you use in general commerce is often referred to as your Fictitious name or DBA (Doing Business As) name. You can think of this as the name you would put on the signage of a storefront. Kansas does not have a law requiring you to register your DBA name.
Choose Your Business Structure
Choosing the legal structure for your company is one of the most important decisions you’ll make when starting a business. Learn more about different business entity types, their registration requirements, and the advantages and disadvantages of each structure.
What is a Sole Proprietorship?
The sole proprietorship is the most common form of business structure.
- A sole proprietorship is a business controlled and owned by one individual and is limited to the life of its owner, so when the owner dies the business ends.
- The owner receives the profits and takes the losses from the business.
- This individual alone is responsible for the debts and obligations of the business.
- Income and expenses of the business are reported on the proprietor’s individual income tax return and profits are taxed at the proprietor’s individual income tax rate.
Kansas has no state requirements to register or file the business name of a sole proprietorship.
- A sole proprietorship has few formalities and low organizational costs.
- Decisions are made by the owner.
- There are fewer reporting requirements to government agencies.
- Corporate “double tax” is avoided.
- Business losses may be taken as a personal income tax deduction to offset income from other sources.
- All profits are taxed as income to the owner at the owner’s personal income tax rate.
- Ability to do business in almost any state without elaborate formalities.
- Compared to corporations and partnerships, sole proprietorships cannot take advantage of certain benefits afforded by the Internal Revenue Code.
- The business terminates upon death of the owner.
- Investment capital is limited to that of the owner.
- Loans are based on credit worthiness of the owner.
- Owner’s assets are subject to business liabilities. So for example, if a company truck is involved in an accident, the owner’s personal assets (that is, bank accounts, cars, etc.) may be attached to compensate the injured party in some judicial proceeding or lawsuit.
- Profits are taxed as personal income on IRS Form 1040, Schedule C; and
- For information on Social Security tax, refer to IRS Publication 533, and use Form 1040, Schedule SE.
A general partnership is a business owned by two or more people (even a husband and wife), who carry on the business as a partnership. Partnerships have specific attributes, which are defined by Kansas Statutes.
- All partners share equally in the right and responsibility to manage the business.
- Each partner is responsible for all debts and obligations of the business.
- The distribution of profits and losses, allocation of management responsibilities and other issues affecting the partnership are usually defined in a written partnership agreement.
- The filings are optional and not mandatory.
- A general partnership is easy to organize and has few initial costs.
- A general partnership draws financial resources and business abilities from all partners.
- It has quasi-entity status in that it may own assets, contract in the partnership name, may sue and be sued in the partnership name and may file separate bankruptcy.
- Liability is shared by all partners.
- Partners may take business losses as a personal income tax deduction.
- The partnership may register a trademark or a service mark to help prevent confusion resulting from deceptively similar business names.
- Each partner is personally liable for all the obligations of the business, not just his or her share. Thus, if a company truck is involved in an accident, each partner’s personal assets may be attached by the court to help compensate the injured party.
- Each partner has the power to act on behalf of the business, which requires that partners be chosen with care.
- The partnership has no continuity of life. If any partner dies or becomes incompetent, such partner’۪s interest is dissociated from the partnership and the partnership may be dissolved and reformed.
- All partners must pay tax on their share of partnership profits, although profits may be retained in the business.
- A general partnership has more opportunity than a sole proprietorship but less than a corporation, to take advantage of certain benefits afforded by the Internal Revenue Code.
- For income tax purposes, a General Partnership functions as a conduit and not as a separate taxable entity. No tax is imposed on the Partnership itself (K.S.A. 79-32,129 et. seq.). Those carrying on business as partners are liable for taxes based on their percentage of ownership and must file a Kansas Individual Income Tax Return (Form K-40) (K.S.A. 79-3220). Each individual partner is subject to the same reporting requirements and tax rates as the Sole Proprietor or individual. The Partnership must file a Kansas Partnership or S Corporation Income Tax (Form K-120S) each year to enable the State to determine who should be paying taxes relative to the Partnership.
- Unemployment taxes need not be paid on the partners or for services rendered by individuals who are the children under 18 years of age, the spouse or the parents of any partners.
- Partnerships are required to apply for a Federal Employer’s Identification Number, whether they have employees or not.
Limited Liability Company
- A limited liability company, or LLC, is a business entity that combines the limited liability of a corporation with the flexible management options of a general partnership.
- Each member of an LLC enjoys liability limited to that of the investment in the business and pays taxes in proportion to ownership share, thus avoiding the corporate malady of double taxation.
- Every LLC formed in Kansas must have at the end of the company name the words “limited company,” or the abbreviation “LC,” or “L.C.,” or “limited liability company” or the abbreviation “LLC” or “L.L.C.”
- An LLC must maintain a resident agent and file Annual Reports.
- Members of an LLC may be involved in the management of the business without incurring personal liability.
- If properly structured, an LLC may receive pass-through income tax treatment similar to a partnership.
- Registration with the Office of the Secretary of State is required.
- The professional limited liability company is comprised of a single professional or group of professionals, who file both Articles of Organization and a certificate from their specific professional regulatory board with the Office of the Secretary of State. The certificate must state that each member is duly licensed and that the company name has been approved. If the limited liability company is organized to exercise the powers of a professional association or corporation, each such profession shall be stated.
- A domestic LLC, one formed in Kansas, must file Articles of Organization.
- A foreign LLC, one formed in another country, state or jurisdiction other than Kansas, must file a Certificate for Authority to Engage in Business in Kansas/Foreign Limited Liability Company Application.
- It may be necessary for the limited liability company interests to be registered with the Office of the Securities Commissioner.
- Liability of members of the limited liability company is limited to the amount invested.
- An LLC has very flexible management options.
- An LLC may be taxed as a partnership.
- An LLC can be perpetual.
- Transfer of interest is limited.
- An investment is of limited liquidity since all members must vote to transfer a member’s interest.
- Annual Reports must be made to the Office of the Secretary of State.
The most complex business structure is the corporation.
A corporation is a separate legal entity that is comprised of three groups of people: shareholders, directors and officers. The shareholders elect a board of directors that has responsibility for management and control of the corporation. Because the corporation is a separate legal entity, the corporation generally is responsible for the debts and obligations of the business. In most cases, shareholders are insulated from claims against the corporation. The corporation, as a separate legal entity, is also a separate taxable entity. Registration with the Office of the Secretary of State is required. It may be necessary for corporate securities to be registered with the Office of the Securities Commissioner.
A domestic corporation is one incorporated in Kansas. It must file Articles of Incorporation with the Office of the Secretary of State. A foreign corporation is a business incorporated in a country, state or jurisdiction other than Kansas. In order to conduct business in Kansas, a foreign corporation must file an Application for Authority to Engage in Business in Kansas. A professional corporation is comprised of a single professional or a group of professionals who file both Articles of Incorporation and a certificate from their specific Kansas professional regulatory board with the Secretary of State. Shareholders of a professional corporation are limited to members of that specific profession.
- No shareholder, officer or director may be held liable for debts of the corporation unless corporate law was breached.
- Interests in the business may be readily sold by the transfer and sale of shares.
- The ready transferability of shares in the corporation facilitates estate planning.
- If desired, a qualifying corporation may be taxed as a Subchapter S under the Internal Revenue Code.
- Shares of the company may be sold to investors in order to obtain capital financing.
- Corporations, to a much greater extent than sole proprietorships and partnerships, may take advantage of pension plans, medical payment plans, group life and accident plans and other benefits available under the Internal Revenue Code.
- The corporate structure provides for a great deal of flexibility with respect to tax planning. For instance, income between the corporation and its shareholders may be adjusted, within reasonable limits, to obtain the most favorable tax treatment for each individual.
- The entity exists forever, so long as corporate regulations are met. There is no need to cease operations if an owner or manager dies.
- Cost of organization, legal fees and state filing fees can be expensive depending on the complexity and size of the business.
- Control is vested in a board of directors, elected by shareholders rather than control vested in the individual owners. Thus, a shareholder who owns less than 50 percent of the stock may have a less than effective voice in how the business is run.
- The possibility of double taxation exists.
- Income from the business is taxed at the corporate level and again when the individual shareholders receive profits in the form of dividends.
- The corporation must qualify in each state in which it chooses to do business.
- Unlike sole proprietorships and partnerships, individual shareholders may not deduct corporation losses unless the corporation has elected to be taxed as a Subchapter S Corporation.
- Annual Reports must be made to the Office of the Secretary of State.
- The Corporation may be taxed under Subchapter C of the Internal Revenue Code (a “C” Corporation) or Subchapter S (an “S” Corporation). Kansas law provides for comparable treatment. A “C” Corporation reports its income and expenses on a Corporation Income Tax Return and is taxed on its profits at corporate income tax rates. Profits are taxed before dividends are paid. Dividends are taxed to shareholders, who report them as income, resulting in “double taxation” of profits, which are paid as dividends. If the Corporation meets the statutory requirements for “S” Corporation status, the shareholders may elect to be taxed as an “S” Corporation. The “S” Corporation is taxed in the same manner as a Partnership (i.e., the “S” Corporation files an information return to report its income and expenses, but it generally is not separately taxed). Income and expenses of the “S” Corporation flow through to the shareholders in proportion to their shareholdings and profits are taxed to the shareholders at their individual income tax rate. To elect to be an “S” Corporation, a Corporation must file Form 2553 with the IRS.
Draft a Comprehensive Business Plan
A business plan defines your business, goals and serves as a written roadmap for the businessperson to determine where the company is, where it wants to be and how it plans to get there. A comprehensive, thoughtful business plan can be essential in obtaining outside funding, credit from suppliers, finance marketing for your business, management of your operation and achievement of your goals and objectives.
You can utilize the MCAC Loan Application to help build your business plan, or sign up for Small Business Development Center Services (look for the Pittsburg State service center). You can also start with the SBDC guidelines for building a Business Plan:
Understand Your Market
Retail Marketplace Reports:
By signing up for SBDC assistance the MCAC staff is able to provide you with a Market Analysis for your individual type of business. To get a more in-depth view of your line of business, contact Lisa Kuehn-Small Business & Marketing Specialist.
- Market Profile
- Retail Goods And Services Expenditures Report
- Retail Market Potential Report
- Retail Marketplace Profile Report
Business Tax Registration
Understanding the taxes that will be applicable to your business at the Federal, State, and local level is a critical part of planning for success. The activities of your business, the business structure you choose, and whether or not your business will qualify as an employer are likely to impact the types of taxes your business will be subject to.
The links below will help you determine if you will be required to obtain a Federal Employer Identification Number (FEIN) and lead to more information about employer and business-related taxes. Or you may choose to go directly to register for a FEIN and/or state taxes.
Finance Your Business
Identifying potential sources of investment capital is an important part of starting and growing your business. We want to help Montgomery County businesses be successful by providing the right resources at the right time. How do you know if you’re ready for funding? Do you have an idea for a business? Do you currently own a business and need capital to expand? What is the right option for you? What options are available to you, based on your business stage and collateral?
MCAC can help you find out which resources may fit your business. The below programs are frequently used in Montgomery County to start a new business or expand an existing business.
Common Permits needed for Businesses
The State of Kansas has listed common businesses or areas that require registration/ licensing/ permits with specific agencies/commissions. New businesses should also check with their local city and county clerk to determine if either municipality requires any licenses/permits/zoning requirements.Applying for an EIN with the IRS