In news that should be terrifying to most US states’ technology administrators, Rwanda (yes, that Rwanda) now has an online business registration system that is faster and easier than most US states. This system allows a person to form a company in Rwanda in 1 hour.

Compare this to the standard processing time of select US Secretary of States (as of June 2010):

• California Secretary of State: 70 Days
• Maryland Department of State: 75 Days
• Nevada Secretary of State: 45 Days
• New York Secretary of State: 20 Days
• Washington D.C. DCRA: 40 Days

So if you want to file a DBA, incorporate a business or form an LLC in the United States, you will almost certainly have to wait longer than your entrepreneurial equivalent in Rwanda. This should be a wake up call to each US Secretary of State’s filing office: in the largest, most powerful economy in the world, we are now falling behind 3rd world countries (recovering from a brutal civil war) in the time it takes to register a business.

The number of new business registrations is an important indicator of the overall health of an economy and US State governments should make upgrading their systems a priority not only to make business startups faster, but to improve and streamline the internal operations of their own offices.

Many entrepreneurs and startups are very concerned when they go to start their company because they’re not sure what type of business entity (Corporation, S-Corporation, LLC, etc.) a venture capitalist (VC) would want their company to be formed as, which state they should incorporate in and the types and number of shares.

However, many entrepreneurs and startup advisors believe that this should not be the primary concern. For example, if you incorporate in California when you start out, you can then “re-incorporate” in Delaware later should your investors require this. Or if you don’t authorize enough shares, then you can amend your original articles of incorporation later to reflect more shares, or different classes of shares (common shares vs. preferred shares).

There may be an exception in regards to the LLC – sometimes this entity is more difficult to modify for a venture capitalists needs – VC’s almost always prefer to work with the C-Corporation.

So, in essence, many companies start out in one structure, based in one state and eventually end up being changed considerably later. Instead, it might be advisable to work on working on your product or service, getting the company going in whatever form and then worry about these corporate formalities later – if you are at the point where they are modifying your company, you will probably receiving significant funding and these formalities will be handled by seasoned lawyers.

If you want to do the Delaware option at startup, see how a lawyer would set up a Delaware company now if were a startup. Almost always this is a Delaware C-Corporation.

If you’d like to see some of the typical venture capital agreements or how they typically modify the articles of incorporation, then view these “Model Series Seed Agreements“. This includes documents like Investors Rights and a “Term Sheet”.

Long story short, it’s ultimately up to you how you want to structure your company in the beginning, but the links mentioned above will show how a VC or startup lawyer might eventually structure your corporation.

The Startup Lawyer has a fantastic post detailing exactly how he would setup a company in Delaware (like he does for his clients). This includes:

• Incorporating in Delaware as a C-Corporation.
• Authorizing 10,000,000 shares of common stock at $0.0001 par value.

He details other issues like the appropriate amount of stock he would issue to the founders, vesting schedules and even how he would raise capital. Highly recommended.

The only thing I would add is that a startup doesn’t have to start by issuing that many shares, you can save money by starting with a smaller amount, for example, one thousand shares and then if you get to the point where you need to raise money or venture capital, you can amend your “Articles of Incorporation” for higher share amounts later.

It is a fairly simple procedure to incorporate a business and as a professional you will benefit from the advantages of incorporation such as personal liability protection, taxation benefits and business credibility. When you incorporate a business you are required to complete a few necessary steps including filing your Articles of Incorporation with the state, drafting your Corporate Bylaws, obtaining a Federal Tax I.D. Number (also known as an FEIN or EIN) and choosing a registered agent. An online incorporation service can help you with each step or you can work with your state’s filing office, usually the Secretary of State, to incorporate a business.

You will need to select a state in which to incorporate a business whether it be for profit or nonprofit. Most often, small business owners will incorporate a business in their home state or the state where the business will be operate and be physically located. It might be of some benefit to your particular business to incorporate out-of-state, but virtually every state requires that an out-of-state company also incorporate in its home state, so make sure you have done your research prior to choosing your state to avoid paying  more money than necessary.

In addition to choosing your state, you will need to choose a unique name for your business. The name will need to be available in your state and you should also know that some states have their own guidelines for business naming, so it is a good idea to have a few names picked out in case your first choice is not available for whatever reason.

You will need to wait until you have received the filing paperwork back from your state before your company is officially incorporated, but there are things you can do while you wait such as prepare a business plan for operating your business. Your business plan can be simple or comprehensive depending on the complexity of what your company will do and the requirements of your bank, if you are applying for a business loan. Other things to do while you incorporate a business include opening your company bank account, leasing office space, obtaining any permits or special licenses you will need and hiring employees.

Your corporation will be structured with Shareholders owning the company stock. Often, a small business owner operates a company on his or her own so exists as the company’s only Shareholder. It is also common for a small business owner to be the corporation’s one Director and hold all Officer positions (President, Secretary, Treasurer, etc.). A corporation is operated by rules set forth in the Corporate Bylaws, which are completed after you incorporate a business and can be modified in time as the business changes or grows. Operating a corporation requires, at the minimum, holding an annual Shareholders and Directors meeting, keeping written minutes of any decisions affecting the company and following general corporate rules as dictated in your Corporate Bylaws.

By completing the steps outlined to incorporate a business, your business idea will become a reality. An good online incorporation service will charge reasonable fees and assist you through the process of starting your own company.

As you’re starting your own company you may be wondering how to incorporate and in fact, what a corporation itself is. A corporation exists as its own legal entity and provides personal liability protection, builds business credibility, works as a shield from company debt and offers certain tax advantages for the small business owner. Incorporation is a fairly simple process, but it might be beneficial for you to work with an online filing service that will guide you through the incorporation process including Bylaws, Organizational Minutes and the like.

You will want to start by choosing the state in which to incorporate. You will most likely want to incorporate in your home state or the state where your business will be physically located. While there may be advantages for you to incorporate in a business-friendly state such as Delaware, Nevada or Wyoming, virtually every state requires that an out-of-state corporation “re-register” in the state where they are actually doing business; so you will more than likely still have to pay the necessary taxes and fees in your state if you choose to incorporate elsewhere.

To legally become an existing corporation in your state, you will need to file Articles of Incorporation and complete Corporate Bylaws, which will be the rules for operating your corporation on a day-to-day basis. How to incorporate also requires that you choose a name for your business. You will need to make sure the name is available by checking with your state’s corporate filing office, usually the Secretary of State. An online filing service can check for name availability on your behalf.

Because a corporation exists as its own entity, it requires its own identification number just as an individual has a Social Security Number. A company’s identification number is known as a Federal Tax I.D. Number or FEIN or EIN. An online incorporation service can obtain your corporation’s FEIN during the incorporation process or you can obtain one yourself from the IRS.

Incorporating as a corporation also requires a certain management structure of your company. Corporations are structured with Shareholders owning the company stock. Shareholders elect the Directors, also known as the “Board of Directors,” and the Directors appoint the corporation’s Officers (President, Secretary, Treasurer, etc.) to operate the company on a daily basis. A corporation’s Shareholders can also serve as its Directors and Officers, so if you intend to operate your company on your own or will hire only a small number of employees, you will most likely be the only Shareholder, Director and also hold all the Officer positions.

Once you’ve completed the legal steps of how to incorporate, you will need to follow other steps to successfully operate your business. Some of these steps might be to open your company bank account, lease office space and ultimately, figure out how you will finance your business until you start earning income. The important thing is that you can become incorporated fairly quickly, depending on the filing processing time in your state, freeing yourself up to see your business idea become a legitimate business.

If you’ve thought of a business idea and want to start a company, but aren’t sure how to begin, the good news is you’re already on your way. The first step to starting a company is having an idea. Your idea might come from a personal interest or an activity you’re particularly good at, such as opening your own bakery if your cupcakes are the best in town. Your idea might be the solution to a common problem that a lot of people need help with. Maybe you’re thinking about buying a business that’s for sale to put your own effort into improving an existing product or service. The most important thing is that you feel passionate about your idea and have the determination to see it grow from a start-up to a working business.

Once you’re certain that your idea is one you will want to follow through with, and is realistic for you as an individual—someone who doesn’t like children would not want to open a daycare, for instance—you will need to prepare a business plan. A business plan will help you figure out a step-by-step process for growing your business from a simple idea to a successful enterprise. A business plan might sound complicated but doesn’t have to be. You can start a company with a simple business plan that you’ve outlined yourself on a piece of paper. However, if you plan to apply for a business loan to start a company, you will need a more comprehensive business plan to satisfy the requirements of your lender. There are many books and online services available to help you create a comprehensive business plan.

In addition to outlining the structure of your business and your business goals, your business plan should determine the costs involved in starting a company. Many small business owners start a company with very little capital and rely on credit cards or the help of friends and family. Some small business owners will also seek investors to help them finance the company during the start-up phase. If your business will require a large amount of money to lease office space or buy special equipment, you will probably need to apply for a small business loan or a bank loan. You can learn more about your loan options by visiting the website of the Small Business Administration or visiting your bank.

In addition to writing your business plan and working out how to finance your business, you will need to follow the required legal process to start a company. Choose a name for your company and select the legal structure that will work best for your business, such as a incorporating as corporation or an LLC. You will need to obtain a Federal Tax I.D. Number, also known as a FEIN or EIN, which is a company’s identification number much like an individual’s Social Security Number. A FEIN can be obtained through the Internal Revenue Service or through an online incorporation service when you start a company. An online incorporation service will also help you start a company by guiding you through the official formation process and assisting with the necessary paperwork.

If you’re thinking about starting a company, there are many benefits to incorporation. Incorporation (also known as “incorporating” or “forming a corporation”) provides small business owners with personal liability protection, builds business credibility, offers tax advantages and makes it easier to raise money through the sale of company stock. For these reasons and others, the corporation is one of the oldest and most prestigious entities of choice for anyone who wants to start a company.

Incorporation makes it possible to purchase real estate, enter into contracts and shield individual assets and equity from business-related debt collection and any potential legal disputes, because a corporation is its own entity separate from its owner(s). Essentially, incorporation creates a legitimate legal entity separate from its owner(s); similar to a new “person” with its own name and identification number. A company’s identification number is known as a Federal Tax I.D. Number or FEIN or EIN. An online incorporation service can assist you in obtaining your company’s FEIN at the time of your company formation or you can obtain one yourself from the IRS.

A corporation is structured with Shareholders who own the stock of the corporation. A corporation’s Shareholders then elect Directors, known as a corporation’s “Board of Directors,” who make many of the major decisions affecting the corporation and usually with the Shareholders’ best interests in mind. The Directors then appoint the corporation’s Officers (President, Secretary, Treasurer, etc.) and the Officers operate the company on a day-to-day basis. In many cases, a corporation’s Shareholders will also serve as its Directors and Officers and it is common for the owner of a small business to be its only Shareholder, its sole Director and hold all Officer positions.

The rules for operating your corporation are set forth in the Corporate Bylaws. The Corporate Bylaws are established during the incorporation process and can be modified as the business evolves from the start-up phase. Operating your corporation requires, at the minimum, holding an annual Shareholders and Directors meeting, keeping written minutes of major company decisions and following general corporate rules as dictated in your Corporate Bylaws.

Incorporation provides additional benefits in that a corporation’s Shareholder(s) can deduct business expenses such as employee healthcare programs and annual meeting costs, and income is reported on the corporation’s own tax return. However, new small corporations will often choose to elect “S-Corporation Status” after formation to avoid “double taxation.” An s-corporation is taxed with the corporation’s profits and losses added to the personal tax returns of its Shareholders to avoid having to pay taxes on profits once, then again when the profits are given back to the Shareholders as dividends. Electing “S-Corporation Status” requires only (besides US Citizenship and fewer than 100 shareholders) that the appropriate resolution be adopted and Form 2553 be submitted to the Internal Revenue Service with some states requiring their own version. New business owners should know that while there are benefits to electing “S-Corporation Status,” the s-corporation has more restrictions than a regular corporation and does not allow for the deduction of certain business expenses such as healthcare.

Incorporation requires that you choose a state in which to form your corporation, which will usually be your home state to avoid paying additional fees. Your corporation might benefit from the friendly business laws of Delaware, Nevada or Wyoming, but virtually every state requires a corporation to “re-register” as a “foreign corporation” if formed in a state other than its physical location. For instance, a corporation that is formed in Nevada, but is physically located and operated in the state of Texas, will have to register in Texas as a foreign corporation in addition to original formation in the state of Nevada.

If you would like to start a business but aren’t sure how to incorporate, an online incorporation service can assist you with all the necessary paperwork you will need to file with your company’s state to become incorporated. Additionally, an online incorporation service should be able to guide you through the process and provide other services that may be of help to you such as obtaining your FEIN and obtaining your Corporate Bylaws.

Just like every new year, we expect this January through March of 2010 to be busy. For tax reasons, many people delay their filing until the new year which creates a large backlog for each state’s filing office. Further exacerbating the problem this year is the fact many states have cut back staff – some states have even furloughed employees to meet budget deficits.

Because of this, we always recommend our “Rush Filing” option during this time if you are in any kind of a hurry to get your paperwork filed. Note that we do not keep any of the “Rush Filing” fees ourselves – they simply cover overnight and/or hand-delivery fees as well as any state-level expedite fees.

Thanks and don’t hesitate to contact us if you have any questions.

Entrepreneur.com has an Article Posted detailing one young entrepreneur’s journey from the financial sector to starting his own sports marketing firm:

I feel it’s essential that you are able to marry your work and what you love. This passion will ignite the minds of your potential clients and connections. Your business has to be a reflection of what you are already willing to pour countless hours into. Your passion and enthusiasm for your business has to connect to your why, be a part of your own experience, and is ultimately what will make you successful.

The article also includes summaries of the creation of Facebook and YouTube and encouraging words for those with an entrepreneurial spirit who haven’t yet made the jump to starting their own venture.

The concept of starting your own business can be intimidating but it’s not as difficult as many people think. Once you have come up with a Business Idea and drawn up a Business Plan you’re ready to Start Your Company! MyNewCompany.com also has a Resource Center with tons of useful information!

Forbes has an article posted on How to Bounce Back From Failure:

Anyone who claims to have built something of lasting value–be it a business, personal relationship or a body of critical knowledge–without suffering serious pain and disappointment is either a liar or dangerously naïve. At some point on your journey, you will stumble and fall.

As the article mentions only 45% of startups make it to their 4th anniversary. In today’s troubled economic climate the challenges faced by new businesses are even greater. What separates successful entrepreneurs from the crowd is not a lack of failures, but the resiliency to pick themselves up and try again when things don’t go as planned.

Of course, when starting a new venture it is always worthwhile to do everything you can to increase your odds of success. Two great ways to do this are by adopting a properly written Business Plan and Automating Your Business. Franchises have a much, much higher success rate than general business startups, so Automating your Business to make it run like a franchise will give you an advantage over other companies that have not taken this crucial step.

If you enjoy our blog posts just visit our Free Tools & Resources page to follow us on social media or subscribe to our free monthly newsletter!

BusinessWeek has an Article Posted on who is responsible for settling an LLC’s debts after a Dissolution:

Creditors of a valid LLC can collect only from the assets of the company, not personal assets or wages, and garnishments cannot be used against wages unless a money judgment has been awarded in court.

However, this is contingent on the LLC having been properly maintained:

Unfortunately, it’s also possible that you took some action while your company was in business that removed the protection of your LLC, such as signing a personal guarantee with the landlord or mingling personal and company funds.

Fortunately for MyNewCompany.com clients, our LLC Formation Packages include access to the “New LLC Handbook”, which tells you everything you need to know about running your LLC properly so that you can maintain your Liability Protection.

Small Business Trends has an Article by Tim Berry on the lessons learned after 22 years of bootstrapping:

Last week a group of students interviewed me, as part of a class project, looking for secrets and keys to success. They were asking me because after 22 years of bootstrapping, my wife Vange and I own a business that has 45 employees now, multimillion dollar sales, market leadership in its segment, no outside investors, and no debt. And a second generation is running it now.

Bootstrapping (self-funding your startup) is just one method of Finding the Money to start your new venture. Of course, it always helpful to have a good Business Plan before looking for funding.

BusinessWeek has an Article Posted with helpful information regarding the tax implications of choosing S-Corporation or C-Corporation status when forming a new company:

The debate on proposed tax rate increases for the country’s wealthiest people has just begun, and the potential increases would not happen until 2011. Still, tax experts say it is not too early for small business owners to think about defensive strategies. Whether they’re contemplating moving from S-corporation to C-corporation status, accelerating income, or deferring compensation, their decisions should be thought through in the larger context of their business and personal goals, says Lester Law, senior vice president at U.S. Trust’s National Wealth Strategies Group(BAC), in Naples, Fla.

MyNewCompany.com can form a DBA, an S-Corporation, a C-Corporation or an LLC for you using our Company Formation Service. Many of our clients will consult with their tax advisor (CPA, Bookkeeper, etc.) to see which entity type will give them the maximum tax benefits for their individual tax situation before having us form their company. To see the benefits of using our Formation Service instead of an attorney or other filing service you can visit our page “Compare Us to the Competition”.

Joel Spolsky of the always-excellent Joel On Software has a new article up on Inc. Magazine’s site. He interviews Jessica Livingston (founder of a group of Angel Investors) regarding why start-ups fail.

Paul Graham, Jessica’s husband and partner in Y Combinator, has tackled this subject on his website. “The biggest reason founders stop working on their start-ups is that they get demoralized,” he writes. “Some people seem to have unlimited self-generated morale. These almost always succeed. At the other extreme, there are people who seem to have no ability to do this; they need a boss to motivate them. In the middle there is a large band of people who have some, but not unlimited, ability to motivate themselves. These can succeed through careful morale management (and some luck).”

Of course it is easier to stay motivated when you don’t get bogged down in the often confusing process of setting up your company properly. Clients utilizing MyNewCompany.com’s Formation Services don’t have to worry about this. We take the hassle out of starting a company and give you the peace of mind of knowing that you have done everything correctly during the start-up process!

BusinessWeek.com has a post explaining how getting an FEIN (Federal Employer Identification Number) is not only required for Corporations and LLCs, but can also help keep your Social Security Number confidential when you file a DBA.

You’ll also have to obtain an EIN if you decide to form a different business entity, such as a corporation or limited liability company. If none of those apply, then you can use your Social Security number as your taxpayer ID. Some business owners prefer to use an EIN, even though they are not required to, just to avoid using their Social Security number, says Lisa Schwartz, with Mitchell & Smith in Camarillo, Calif.

MyNewCompany.com can prepare your FEIN Application and/or obtain an FEIN on your behalf as part of our Business Formation Services!