What’s Needed To Set Up A Marketing Agency
A lot of people charge into business without really knowing what’s needed to set up a marketing agency from a legal standpoint. Many people gloss over the legalities when learning how to set up a marketing agency, which can cause trouble later down the road. If you want to avoid legal issues that could hinder and even shut down your business, you need to set things up the correct way.
Setting up a marketing agency legally is mostly for your protection. Becoming a legal, licensed entity allows you to get insurance. However, getting your business license also helps make financial processes run smoothly and function properly.
As with any legal process, there are a lot of details you need to know about when setting up your marketing agency. Often, it’s best to consult a lawyer about what’s needed to set up a marketing agency and what would be right for your business. However, there are a few choices that are the standard.
There is a major difference between knowing how to set up a marketing agency legally and knowing how to start a digital marketing agency in 2019. You might already know how to set up a Facebook business page or how to create a YouTube brand account, but you also need to know how to start a corporation. What I’m going to cover here has nothing to do with the work you need to do to run a marketing agency, and more to do with the backend.
Taxes, payroll and bookkeeping aren’t sexy the way digital marketing has become. If you put them aside and don’t pay attention to them, though, your business is very likely to fail. This is an area where your knowledge needs to be strong, and you need to be willing to work with professionals who can help you.
What’s Needed to Set Up a Marketing Agency As a Legal Business
Taxes are the biggest reason to register your business with the government. If you fail to comply with local, state and federal tax laws, that can wreak havoc on your business later down the road. When it comes to taxes, marketing agency owners can be liable for a lot of money and paperwork.
The first is a Tax Identification Number. This is like a social security number for your business, which allows it to have a bank account and act as an entity. Registering as a corporation with the federal government should cover you here, though you might also need a local number.
You will also need to meet Employee Payroll Tax & Filing requirements. As an employer, you are required to make federal tax payments during employee payroll. You also need to provide employees with W-2s and 1099s so they can report their income, as well as filing your own reports with every interested government body – an accountant can help a lot with this.
To gain the ability to meet those tax requirements, you need to register your business with the government. This allows relieves you of some legal liability, as it sets your business up as a separate legal entity. There are 5 major types of business which we’ll cover quickly here.
As you learn how to set up a marketing agency, you are likely to begin operations as a sole proprietorship. A sole proprietorship is most likely to take the form of a DBA (Doing Business As), which splits you as a legal entity into a person and business. A sole proprietorship is owned and operated by a single person, and is mostly commonly used for freelance work.
No government filing is required for operation as a sole proprietorship, as it doesn’t have much of a legal impact. A sole proprietorship creates no legal separation between you and your business, meaning your personal assets are available to creditors when settling debts. However, you can open a business bank account as a sole proprietorship.
What’s needed to set up a marketing agency as a partnership is similar to what’s needed to set up a marketing agency as a sole proprietorship. As the name would imply, a partnership is a business that is owned and operated by two or more people. Tax liability is passed on to the individuals in a partnership.
No legal separation is created in a partnership, but you can (again) open a business bank account or get business insurance. Most business partnerships will have some form of contract involved, though, laying out which partner is liable for any incident. If you are a partnership, you should speak to a lawyer who can help with this.
An LLC, or limited liability corporation, is a legal entity that essentially creates a business as a person. An LLC is not subject to a separate level of tax, and ownership is not restricted by most states. Owners of an LLC can maintain sole ownership or split ownership between individuals, corporations,foreign entities and even other LLCs.
Owners of an LLC have no personal liability for any incidents in the business, or for the businesses financial aspects. Because of this, LLCs do require legal filing. Filing for an LLC can accrue high fees – higher than other kinds of corporations – as well as other financial responsibilities in some states.
The other major types of business are both different kinds of corporations. These are for large companies with multiple employees, and are most often well established. If you are just learning what’s needed to set up a marketing agency, you are unlikely to incorporate as a C Corp or S Corp.
A C Corp is the standard corporation, and can have any number of shareholders. It is responsible for its own debts and liabilities, meaning shareholders only have to worry about the amount of money that they’ve invested. Only corporate assets are available to creditors should debts need to be paid, but profits are maintained by the business.
An S Corp is similar to a C Corp, but profits flow through shareholders. This makes the S Corp a better option for most small businesses, but also invites higher IRS scrutiny. Losses are also the responsibility of shareholders, inviting liability to debtors.
In both cases, formalities must be followed – corporations need officers, shareholder meetings, and quarterly reports.
Why Hiring an Accountant is Important
Once you know what’s needed to set up a marketing agency, you might start to feel a bit overwhelmed. On the surface it looks simple, but anyone that’s ever done taxes or been to the DMV should know that working with the government is time consuming. An accountant can take care of this, and make sure that everything is done correctly.
Accountants are also well aware of the different kinds of businesses, and can tell you which type of business you should register as. Knowing how to set up a marketing agency the right way legally is difficult, so it’s best practice to bring in a professional. Accountants can help you make the decision, and get the filing done.
Of course, moving forward your accountant can also keep on top of payroll and tax filing. These details are extremely important to get right, because there’s always liabilities involved. I heavily advise that you bring an accountant on, and you bring them on earlier.
Business Bank Accounts, Insurance, and Licenses
While an accountant and incorporation cover most of what’s needed to set up a marketing agency, there are some other minutiae to go over. An accountant or attorney can also go over all of these with you, but it’s good to have an idea of what you’re going into. Bank accounts, insurance, and licenses are a must have for most businesses, especially because setting up a SMMA bank account can help cover your costs.
A business should always have a bank account with a bank of a similar size – a small business should register with a small bank, etc. Smaller banks and credit unions will offer lower fees and better interest rates, while usually maintaining customer first policies. Bigger banks will operate more efficiently, though, usually offering more tech and faster processing times.
Business licenses range from general to specific. You will always need a license to do business, but this is usually included in incorporation. However, you might also need licenses for certain services, like selling alcohol. Even for an online business this is subject to the city you reside in, and you should speak with a Small Business Attorney if you think you might need special licenses.
Finally, business insurance covers almost every liability you can think of. From damages to your property to lawsuits with clients, business insurance can keep you out of debt. You should also consider commerce insurance, which protects against credit card and identity theft.
That’s what’s needed to set up a marketing agency. It’s a lot to handle, and is best left to a professional. However, it’s imperative that you get it done before you get into trouble.