Introduction

Starting a business is exciting, but it comes with plenty of uncertainty and unknowns. Today, we will clear up some legal unknowns about starting a microgreen business. This article will cover entity formation, requesting an EIN from the government, opening a bank account, and setting up your payment processing. As usual with these types of blogs, this is not meant to be legal advice. If you feel uncertain during this upstart process, consult a professional.

Overview

Step 1: Business Formation

• Decide on a business name and entity type.
• Submit the business formation documents to your Secretary of State (SoS).
• Pay any required filing fees.
• Create any governing documents, such as an Operating Agreement.

Step 2: Acquire Your EIN

• With your newly formed entity, you can apply for an Employer Identification Number (EIN) from the IRS.
• Your new IRS issued EIN allows you to open a business bank account.

Step 3: Open Your Business Bank Account

• Provide the bank with your EIN and formation documents.

Step 4: Select Your Payment Processor

• Select a payment processor, such as Square, to start collecting payments.
• Link the payment processor to your new business bank account.

Step 5: Get Insurance

• Acquire commercial general liability insurance (CGL).

Step 6: Get Paid

• Sell your microgreens and get paid.

Let’s Dive In

Step 1: Form Your Business

Business formation is key. It legitimizes your work and protects your assets. People will trust buying from Piedmont Microgreens, a legal NC entity, more than from Garrett Corwin, a random guy. A legal business entity legitimizes a business, just like a website or business name. Assuming you use an LLC, the business entity will also protect your personal assets in the event of a lawsuit. So, what options do you have for the business entity? You have multiple options for various business situations, but we'll focus on the sole proprietorship (SP) and the limited liability company (LLC).

SP: The business and the owner are considered the same legal entity. The owner is personally liable for all business debts and legal issues. SPs are faster and less expensive to establish. The required paperwork is minimal, and there are few administration costs. There can only be one owner of an SP. All business income is reported on the owner’s tax return, which is called pass-through taxation.

LLC: The business and the owner are separate legal entities. The LLC provides personal liability protection, shielding the owner's/owners’ personal assets from business debts and lawsuits. However, LLCs are more complex and expensive to establish. There are formation documents, annual fees, and operating agreements. LLCs can be single-member (SM) or multi-member (MM), if you have more than one owner/founder. LLCs are usually pass-through entities as well, meaning the business income appears on the owner’s/owners’ tax return(s). However, specific elections are possible with an LLC with tax benefits down the line.

I started my business, Piedmont Microgreens, as an SP. After a year, I transitioned the business to an SM LLC. After another year, I took an S-Corp election for my SM LLC. The S-Corp election is a tax benefit we won’t go into in this article. However, I want to point out that I went through both entity types before getting to where I am today. I want to save you the grief by telling you to start with the LLC from the beginning. You do not want to expose yourself to the legal risk of running a business as an SP. If you are starting the business with a friend or spouse, you’ll have to create an LLC anyway. The rest of the article will assume you are committing to an LLC entity type.

Okay, we decided on the entity type, and I’m going to assume you have a business name in mind. Now it’s time to register the business with your Secretary of State (SoS). I’ll show you how it’s done in North Carolina since that’s where I operate. Each state will be a little different. If I Google “NC SoS Business Formation,” it takes me to the SoS Business Registration website. If we scroll down, we see a button to “Register Your Business ONLINE!” The online portal will walk you through a series of questions, such as picking the entity type and business name. You will likely act as the “Registered Agent,” meaning the legal point of contact for the government. Add yourself as a Member Organizer for the “Organizers” section. Add yourself as an Owner Manager for the "Company Officials” section. Both of these require basic information, like name and mailing address. The “Effective Date” is when the entity will officially be formed. When I switched from an SP to an LLC, I filed in mid-December 2022 but chose an Effective Date of January 3, 2023. This avoided the 2022 annual reporting fees for LLCs. Otherwise, it doesn’t matter.

Continue with the questionnaire until you see your Articles of Organization. I left the business registration website before finishing because I only went through the process for this article. After final submission and a short review, the SoS will send you an electronic version of your Articles of Organization (AoO). You’ll need this for the next step.

Step 2: Acquire Your EIN

An EIN is your Employer Identification Number and you can think of it as the business equivalent of your social security number (SSN). You will often use it in the same places that you’d otherwise be asked for your SSN, like when setting up a bank account. Start by navigating to the IRS website. There will be a button on the homepage to “Apply for an Employer ID Number.” Weirdly, despite it being an online application, the portal is only available M-F from 7 AM - 10 PM EST.

Follow the instructions. Be prepared with with the following information.

• Legal name of the entity
• Mailing address
• Principal business location
• Your name and SSN
• Entity type - LLC (SM or MM)
• Reason for applying
• Business start date
• Principal business activity

Any information requested by the IRS used in the business formation process must be the same. For example, if you used the name Piedmont Modern Farm LLC in Step 1, don't use Piedmont Microgreens when applying for an EIN. After applying, you should receive your EIN immediately. The IRS will also send an official letter in the mail to the mailing address provided.

Step 3: Open Your Business Bank Account

Now that you have your AoO and EIN, you can open a business bank account. I bank with Wells Fargo, so that’s who I’ll use for this example. Use whoever works best for your situation. Wells Fargo will likely require you to open a business bank account in a local branch. Find one and set up an appointment with a banker. You’ll need to bring your AoS, EIN confirmation paperwork, and a valid government-issued ID. If applicable, you also need your business license. Business licenses are not required for farmers in NC. Pick the best type of business bank account for your needs. Complete the paperwork provided by the banker and fund the account, usually with $25.00. You can get by with just a single business bank account at the beginning - a checking account. However, I suggest you simultaneously apply for a business credit card. Again, this is a nuanced legal matter. I'm not a legal professional, but don't mix personal and business funds. There are proper ways to do this without “piercing the corporate veil,” but it’s best to just avoid it. “Piercing the corporate veil” means breaking one of the rules that allows your LLC to protect your personal assets from business creditors (Legal Zoom). Honestly, that’s probably the most important accounting rule for business ownership - never mix personal and business funds. Anyway, moving on. After you finish the credit card and checking account paperwork, you’ll receive your debit and credit cards. You will also get online access to the accounts.

Step 4: Select Your Payment Processor

Now that you have a business checking account, you can work with a payment processor. The payment processor will accept funds from your customers, take their processing fee, and remit the rest to your new bank account. The most popular North American payment processors include PayPal, Square, and Stripe. You don’t actually need a payment processor in the beginning, but it will make life much easier for everyone. You can try to get by only accepting cash and checks, but many people prefer paying with a credit card. We use Square at Piedmont Microgreens. We can save restaurant credit cards on file and charge them after each delivery. Accepting credit cards will also go a long way at the farmers' market. I suggest getting a Square Reader for chip and contactless payments. If we look at our most recent farmers' market data from Square, we can see that a vast majority of customers prefer to pay with a card.

Step 5: Get Business Insurance

If you want to learn more about the various types of business insurance, check out our other blog - What Insurance is Needed to Start a Microgreen Business?

Step 6: Get Paid

Congrats! You now have a legal business entity, a business bank account, and a way to accept payments. Get out there, sell your microgreens, and get paid.

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