Educational only. This is not legal, tax, or financial advice. Confirm details with official resources and licensed professionals.

LESSON ONE

STRUCTURE

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  • What structure means

  • The word structure refers to the legal shape a business takes.

  • Without any filing, the law typically sees a person and their business activity as one and the same.

  • That default is called a sole proprietorship. It is not separate from the person.

  • By contrast, when someone forms a legal entity like an LLC or a corporation, the business becomes its own legal “person.”

  • This separation means the business can enter contracts, hold property, and owe debts under its own name, apart from the owner.

  • Takeaways

  • Structure = legal shape of a business.

  • Sole proprietorship = person and business are one.

  • Entities like LLCs/corporations = separate legal person.

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  • Sole proprietorship

  • A sole proprietorship happens automatically when a person earns income through business activity without forming a separate entity.

  • It is simple and requires no filings with the state.

  • The trade-off is that there is no separation between personal and business activity.

  • All profits are treated as the individual’s income, and all liabilities belong to the individual as well.

  • For example, if a business debt arises, the creditor can pursue the individual directly.

  • Takeaways

  • Starts automatically without state filing.

  • Profits and debts belong to the individual.

  • No liability separation exists.

  • 3/16

  • LLC

    (Limited Liability Company)

  • An LLC comes into existence through a state filing, often called “Articles of Organization.”

  • Once formed, the LLC exists as its own legal entity.

  •  Owners are called members, and the rules are outlined in an Operating Agreement.

  • The LLC is known for flexibility. It can be managed directly by its members or by appointed managers.

  • For federal tax purposes, the IRS often treats the LLC as a “pass-through” by default, but other classifications are possible if elected.

  • Takeaways

  • Created by filing with the state.

  • Members own the company; managers may run it.

  • Operating Agreement explains rules and ownership.

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  • Corporation

  • A corporation is formed by filing “Articles of Incorporation” with the state.

  • Ownership is represented by shares of stock.

  • The governance system usually includes shareholders, a board of directors, and officers.

  • Corporations are often used for businesses that plan to raise investment or grow larger.

  • The structure is more formal than an LLC.

  • Regular meetings, written minutes, and detailed record-keeping are part of how corporations operate.

  • Takeaways

  • Formed by filing with the state.

  • Ownership is represented by shares.

  • Uses shareholders, directors, and officers.

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  • DBA

  • A DBA (Doing Business As), also called a fictitious name, is when a business operates under a name different from its legal entity name.

  • For example, “abcxyz LLC” might want to run a store called

    “abcxyz Market.”

  • By filing a DBA, the public-facing name becomes "abcxyz Market,” but legally it is still operated by "abcxyz LLC."

  • The DBA is only a nickname on record, not a new entity.

  • Takeaways

  • DBA = “Doing Business As” name.

  • It records a public nickname for a business.

  • It does not create a separate entity.

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  • Registered agent

  • States generally require a registered agent for LLCs and corporations.

  • The agent is the official contact for government and legal notices.

  • A registered agent must have a physical address in the state and be available during business hours.

  • Some businesses name an individual, while others use professional registered agent services.

  • Takeaways

  • Required contact for legal and government mail.

  • Must have an in-state physical address.

  • Can be an individual or a service.

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  • Formation filing

  • An entity is not legally formed until the state accepts its filing.

  • For LLCs, the form is usually called “Articles of Organization.”

  • For corporations, it is “Articles of Incorporation.”

  • The filing generally includes the entity’s name, principal address, registered agent, and basic governance structure.

  • Once approved, the state issues a file-stamped document confirming the entity’s creation.

  • Takeaways

  • State filing makes the entity official.

  • Different forms exist for LLCs and corporations.

  • State returns a stamped approval record.

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  • Governing documents

  • After formation, businesses usually adopt internal rules.

  • For LLCs, this is the Operating Agreement. For corporations, it is Bylaws.

  • These documents outline ownership percentages, voting rights, management authority, and procedures for important decisions.

  •  They are not typically filed with the state but are kept in the company’s records.

  • Takeaways

  • Operating Agreements guide LLCs.

  • Bylaws guide corporations.

  • Explain ownership, voting, and management.

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  • Identification numbers

  • Most businesses obtain an EIN (Employer Identification Number) from the IRS.

  • Despite its name, it is not only for employers

  • An EIN functions like a Social Security Number for the business.

  • States may also assign additional identification numbers for sales tax, employer withholding, or unemployment accounts.

  • These numbers allow governments and banks to track the business separately from its owners.

  • Takeaways

  • EIN identifies the business federally.

  • States may issue additional IDs.

  • IDs link the business to official systems.

  • 10/16

  • Banking and separation

  • Businesses commonly maintain their own bank accounts.

  • This supports financial clarity and helps preserve the separation between owner and company, sometimes called the corporate veil.

  • Mixing personal and business money can blur this separation and create confusion in record-keeping.

  • Separate accounts, along with organized receipts and contracts, show that the entity operates distinctly from its owner.

  • Takeaways

  • Separate bank accounts support clarity.

  • Mixing money weakens separation.

  • Clean records reinforce entity status.

  • 11/16

  • .

  •  Licenses and permits

  • Beyond formation, many businesses require local approvals.

  • Cities and counties often issue general business licenses.

  • Specific industries such as restaurants, salons, or contractors may require specialized permits.

  • Because these rules vary widely, official city, county, and state websites are the most reliable way to confirm what is needed in a given location.

  • .

  • Takeaways

  • Local licenses are often required.

  • Certain industries add extra permits.

  • Requirements differ by location.

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  • Ongoing compliance

  • Formation is only the beginning. Most states require periodic filings to keep an entity in good standing.

  • These may include annual reports, biennial reports, or franchise taxes.

  • Failure to file can result in late fees or even administrative dissolution, meaning the company no longer legally exists.

  • Takeaways

  • States often require recurring reports.

  • Some charge flat annual taxes.

  • Missing filings can dissolve the entity.

  • 13/16

  • Beneficial Ownership Information

    (BOI)

  • As of 2024, many small companies must report their owners to the U.S. Treasury’s FinCEN.

  • This is called Beneficial Ownership Information (BOI) reporting.

  • It usually requires details such as the owner’s name, address, date of birth, and a government-issued ID number.

  • Reports are submitted electronically, and deadlines depend on when the entity was formed.

  • Takeaways

  • Federal rule for many small entities.

  • Filed with FinCEN online.

  • Requires owner details and ID info.

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  • Multi-state activity

  • If a company formed in one state operates regularly in another, the second state may consider it “doing business” there.

  •  In such cases, states often require a process called foreign qualification.

  • Triggers can include hiring employees, opening an office, or holding inventory in another state. Each state defines “doing business” differently, so requirements vary.

  • Takeaways

  • Activity in another state may need registration.

  • Called foreign qualification.

  • Each state sets its own thresholds.

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  • Contracts and records

  • When a company enters into an agreement, the contract typically lists the company’s name as the party, not the individual owner.

  •  Signatures often include a role or title (e.g., Manager, President) to show the signer represents the company.

  • Storing signed agreements, receipts, and decision records provides a clear trail of how the entity operates over time.

  • Takeaways

  • Contracts usually name the company itself.

  • Signatures often include titles.

  • Organized storage preserves clarity.

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  • Optional protections

  • Some businesses explore additional protections early on.

  • These can include buying insurance, filing for trademarks, or securing domain names and social handles.

  • These steps are not required by law but are common ways to manage risk and protect brand identity.

  • Takeaways

  • Insurance reduces exposure to risks.

  • Trademarks protect names or logos.

  • Domains and handles secure branding.

  • Lesson Recap

  • Sole proprietorships are the default without filing.

  • LLCs and corporations create separation under state law.

  • DBAs are public nicknames, not new entities.

  • Registered agents are required contacts.

  • Governing documents explain internal rules.

  • EINs and state IDs identify the entity.

  • Separate banking and records preserve the veil.

01 COMPLETE

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STRATEGY LESSON

Reminder: This lesson is for educational and informational purposes only. It explains how businesses commonly think about scaling but does not provide legal, tax, or financial advice. For specific guidance, consult licensed professionals and official resources.