What Should Startups Do Before Transitioning to a 100% Remote Workforce?
Messaging surrounding doing business during the coronavirus pandemic is starting to turn the corner. What has continually been referred to as a “trying” and “unprecedented” time is slowly shifting into “a time like this” according to a recent survey from QuickBooks.
Within the next 12 months, 72% of individuals surveyed by QuickBooks reported they are optimistic about the prospects of doing business. The survey’s results, which were released in September 2020, also revealed that for 28% of respondents the coronavirus has accelerated their plans to start a small business.
So, what can we expect from these new business owners over the next 12 months? More than half have plans to hire at least one employee. However, the most radical difference may be where they, and their new hires, physically do business. According to the survey, one in four new business owners have plans to operate their companies with a fully remote workforce.
Remote work, prior to the pandemic, was mostly confined to conversation. Some businesses had begun implementing remote work practices and found great success stories emerge from it. However, the vast majority of companies did not fully move towards remote work until state lockdowns were initiated across the United States due to COVID-19. Businesses transitioned into working from home and quickly discovered that not only is remote work possible, but it’s also highly productive.
However, should businesses continue to ride the work from home wave and transition into 100% remote workplaces? Here are a few considerations to keep in mind as businesses contemplate making this transition.
File a Foreign Qualification
Let’s say that you started a business during the pandemic in the state of California. You also incorporated the company in California. However, you have decided that over the next 12 months you’d like to have your team of employees work remote and conduct business operations out of Arizona.
In order to do business in Arizona, it would not be enough for a business to declare that they will conduct operations across state lines. The business must first register as a foreign corporation to obtain the authority to operate in a state outside of their initial formation state.
Filing for a foreign qualification is a fairly straightforward process. If you have incorporated as a corporation or limited liability company (LLC), then you will apply for a certificate of good standing. This document, which you may obtain through your local Secretary of State, is verified proof that your business is in compliance with state laws. In this example, the business that incorporated in California would receive their certificate of good standing from the California Secretary of State. They would then provide this documentation to the Arizona Secretary of State to verify that your business has met its tax and business filing obligations. Then, you would be able to apply for authority to conduct business in Arizona.
Obtain a Tax ID
As mentioned earlier, more than half of new startup business owners plan to hire at least one employee to work for their business. No matter where this employee physically works, the business must file for an employer identification number (EIN) before hiring the employee.
An EIN is also referred to as a tax ID number. It is a nine-digit number issued by the IRS that allows the IRS to identify and track employer tax accounts once they have incorporated or formed an LLC. Once you have an EIN, you may hire employees to work for your business.
What else can you do with this tax ID? Additionally, you may use an EIN to open a business bank account, build a credit profile on behalf of the business, establish pension, profit sharing, and/or retirement plans, and even change the organization structure of your business later on.
Appoint a Registered Agent
Even a 100% remote business must designate a registered agent, or RA, on behalf of the business.
A registered agent acts as the point of contact between your small business and the state. An RA can be the owner of the business or a third-party service. Registered agents will receive paperwork from the county and state agencies for the business. They organize these documents and pass them along in a discrete and confidential manner to the business owner.
Many entrepreneurs with brick and mortar storefronts will choose to work alongside a third-party registered agent. This is often due to the confidential materials of the paperwork that the business owner may publicly receive in an office or storefront space. However, it is also possible for entrepreneurs with a 100% remote workforce to act as their own registered agent.
Remember that in order to act as an RA, you must have a physical street address. This street address must be located in the same state that the business incorporated or formed an LLC. As a registered agent, you must also be available between general business hours to accept service of process. In the event that your fully remote company cannot meet these requirements, you work alongside a third-party registered agent that can provide assistance to your business.