November 03, 2021 | RIA Resources
In our previous articles, we laid the groundwork to plan your independent RIA, including your business strategy and your budget. But one equally important decision (especially to Uncle Sam and FINRA) lies ahead: your business structure. You can’t run an RIA as a freelance operation, and there are significant tax and legal benefits to separating your business and personal assets as an organized company.
In addition to your business structure, you’re going to need to set up bank accounts too and ensure you’ve filed any necessary paperwork with regulatory agencies. Without this, you can’t begin operations.
There’s a lot of work to be done in this step, so we’re going to split this into two articles. This article will focus on C-Corps, S-Corps, and LLCs while next article will focus on setting up business bank accounts and important regulatory and legal filings that you must complete.
We strongly recommend that you consult a lawyer before choosing a business structure and hire a compliance attorney to help draft your investment management agreements and other legally required documents. While some lawyers offer packages that handle all the necessary paperwork to set up your business, you can register yourself through a service like Legalzoom to save money.
There are three common business structures in the US, the C-Corp, the S-Corp, and the LLC. Each has its benefits (and drawbacks). Here’s a brief description of each, if you aren’t familiar with them already:
Choosing an LLC is your best bet for an independent RIA, as it is the easiest (and cheapest) method. Keep in mind as a disregarded entity, the IRS will expect you to file any business income under your tax return unless you’ve made the S-Corp election.
While your business strategy and budget are critical, setting up legal structure and registrations is probably your most important one so far. RIAs are highly regulated, and regulations are confusing to those who aren’t well versed in them. Ensuring your business is compliant is critical.
In our next article, we are going to work through the business strategy in more detail focusing on setting up business accounts, getting legal help, taking the proper exams, and planning a manageable and realistic timeline to establish your new RIA.
The Shoestring RIA is a series of articles written and published by the BillFinTM team at Redi2 Technologies designed to help RIAs as they start out on their own. We recognize just how challenging it is to venture out and build a successful business. Our articles will be focused on helping these new businesses with a wide range of topics.
Links
https://www.thinkadvisor.com/2014/10/27/how-to-start-your-own-ria-firm/