7 Steps to Start a Business in Maine

Small businesses make up 99.2% of Maine businesses, according to SBA. A Bangor Daily News survey also ranked Maine as the best State to start your own business, and the State ranks third in a U.S. Chamber of Commerce study of states with the fastest-growing small businesses.

In short, Maine is currently the best place to start your own business. But that doesn't mean it's easy.

With 149,355 small businesses in Maine (according to 2020 data), you have your work cut out.

But don't worry. If so many small businesses can do it successfully, you can.

Just follow these seven essential steps every successful business takes to start a business in Maine and you're good to make your dream come true.

1. Choose Your Business Idea

Behind every successful business, there are two things in common - a good idea and a comprehensive plan.

So, first, take your time and develop a good, unique idea that makes your business stand out.

Here are some ways to come up with a good idea:

• Analyze your strengths and passions and choose something you're passionate about.
• Choose something that is in demand and has a market.
• Conduct market research and study other small businesses. Find out what they are doing wrong and capitalize on their shortcomings.

2. Make a Business Plan

Next, you need a plan. Why? Because a comprehensive plan can help you define your goals, clarify your strategy, and attract investment.

You probably have never made a business plan, which may be overwhelming. But you can break through with a bit of time and effort and create a plan that will be a manual for your business growth.

When making a plan, ensure your business plan include these elements:

• An executive summary.
• A description of the business.
• The market(s) your company will operate in.
• Analyze your Strengths, Weaknesses, Opportunities, and Threats.
• Management team and personnel.
• The products or services offered.
• Marketing plan.
• A financial plan.

3. Choose Your Business Name

To secure a name for your new Maine business, you must:

• Register your business name - Your business name in Maine should be unique. Make a list of names for your business, then look through Maine's Bureau of Corporations, Elections, and Commissions.
• Include certain words - Your business name should include "Limited Liability Company" or its abbreviation "LLC" if you choose LLC as your structure. Maine's business corporations must include "Corporation," "Company," "Incorporated," or "Limited," or abbreviations of these words.
• Check federal trademarks - Search the U.S. Patent and Trademark Office's site to ensure the federal government hasn't trademarked your name.
• Claim an online domain name and social media handles - If you're considering doing business online, you need a domain name and social media handles. Select an online domain name that goes with your formal name or DBA, and reserve social media handles similar to your domain, legal business name, or DBA.

4. Decide Your Business Structure

Now that your million-dollar idea and plan are ready, it's time to form your business. There are many ways to do it. So read through it all and choose the one that suits you best.

But before that, here are some essential terms you should know about -

• Registered Agent - A registered agent is a person a business organization chooses to receive legal papers on its behalf.
• EIN - A Federal Employer Identification Number or EIN is a unique nine-digit number the IRS gives to businesses for identification purposes.
• Operating Agreement - The agreement outlines an LLC's rules, regulations, and provisions. It is not required by law, but creating one is a good idea.
• Certificate of Formation - A legal document officially registers a limited liability company (LLC) with the State. It is mandatory to file a certificate of formation with the secretary of State (SOS) or a specified division in the State where the LLC is formed.
• Assumed Name Certificate - AKA "Doing a Business As" certificate is a legal document that enables you to do business in a name other than your own.

Let's get started with the business structures -

Sole Proprietorship

A sole proprietorship is an informal business structure. So, there's no legal distinction between you and your business. Hence, your personal and business expenses and revenue are the same.

Being one with your business has its obvious advantages, but there are also some drawbacks. The pros include - easy management and single taxation. This structure also allows you to start your business without requiring a lengthy registration process.

Now coming to the downsides, sole proprietorship makes you personally responsible for all your business's debts or obligations. You also won't be able to secure investors with a sole proprietorship.

Sole proprietorships are not allowed to issue stocks and cannot accept money from investors. So, if you plan on using investors, you'd be better off with a C corporation setup (more on that later).

How to form

You don't need to file any legal documents to establish a sole proprietorship with the Maine state government. But still, you should follow these four simple steps to start your business:

• Choose a business name.
• File an Assumed Name Certificate with your city or town. Get licenses, permits, and zoning clearance (if required).
• Obtain an EIN

Partnership

Partnerships are of three types - General partnership (GP), limited partnership(LP), and limited liability partnership (LLP).

GP, like a sole proprietorship, is an informal unincorporated business structure with the same taxation process but with multiple owners. Similarly, GP. also does not offer liability protection.

The LP structure includes one general partner and at least one limited partner. The general partner is responsible for the organization's debts and the day-to-day operations.

Limited partners, on the other hand, aren't allowed to manage the business's day-to-day functions. However, they enjoy personal liability protection. They are only liable for the money they've invested into the company.

The LLP structure provides liability protection to all the partners. It means if one partner makes any mistakes, errors, or outright fraud, others cannot be held responsible. However, the LLP, similar to other types of partnerships, is a pass-through entity for tax purposes.

How to form

• Select a business name.
• File trademark on the business name (optional for GPs).
• Complete the required paperwork - GPs don't need to register with the SOS. LPs must file a Certificate of Limited Partnership with the SOS and pay any required fees. LLPs must register a Certificate of Limited Liability Partnership with the State.
• Get an EIN.

Limited Liability Company (LLC)

The structure of an LLC gives you the easy flow-through taxation of a partnership or sole proprietorship and the protection of a corporation's restricted liability. This is why LLC is a popular choice among small business owners.

It means that if your company is structured as an LLC, the members cannot be held liable for any debts or liabilities the organization incurs.

How to form

• Name your LLC.
• Get a registered agent.
• File your Certificate of Formation with the Maine SOS.
• Draft an Operating Agreement.
• Get an EIN.
• Set up business and tax accounts.

Corporation

A corporation is a business structure that gives the business a different legal identity from its owners. It is hard to set up and costs a lot of money, and the owners must follow more tax rules and laws.

As a separate legal entity, a corporation can sign contracts, sue and be sued own assets, pay taxes, borrow money, and lend money.

Corporations are of two types - C corporations and S corporations.

C Corp is the most common form of incorporation and comes with double taxation. It means the corporation pays tax as a separate business entity, and the members of a C Corp also pay taxes on the profits they receive as dividends or distributions.

Also, a C Corp can have an unlimited number of shareholders and various classes of stock and must also follow certain corporate formalities, like holding annual meetings, maintaining a board of directors, and keeping records of its activities.

S Corp is a pass-through entity. That's a great advantage as you don't have to go through double taxation but bear in mind that an S corp cannot have over 100 shareholders and only one class of stock.

How to form

• Name your Maine corporation.
• Appoint directors.
• Choose a Maine registered agent.
• File the Maine Articles of Incorporation.
• Create corporate bylaws.
• Draft a shareholder agreement.
• Issue shares of stock.
• Apply for necessary business licenses and permits.

5. Obtain Business Licenses and Permits

General licenses to operate a business are not provided by the State. The licenses are managed at the town/city level in Maine. Contact your municipality or local government to see if they require a general business license. Visit the Maine.gov Local Government portal.

You might also need to obtain professional licenses depending on your industry. For example, you likely need specific permits if you operate in the restaurant, liquor, gaming, or agriculture industries. The State provides various professions' licensing information, applications, regulations, and resources.

6. Consider Buying Business Insurance

Business insurance is essential to save your company and assets from unexpected disasters. Consider the following options -

General liability insurance for businesses

A Commercial General Liability (CGL) policy protects companies from financial claims related to property damage, injuries, false advertising, libel, and slander.

Liability insurance for professionals

If your business can get accused of malpractice or gross carelessness, you should buy professional liability insurance. This insurance protects against legal claims that could come up because of mistakes made at work.

Property insurance for businesses

Business property insurance protects a business financially if its property is lost, stolen, or damaged.

7. Open a Business Bank Account

It's best to keep your business finance separate from your personal finance. Especially if you set up a formal business legal structure that protects your personal liability, mixing your personal and business finance will put your personal assets at risk.

Separating your finances will also make tracking your income and spending easy, managing cash flow, and planning for the future.