How to Start a Business in Alaska

Are you ready to take the plunge into business ownership in Alaska, the Land of The Midnight Sun? This great state may be sparsely populated, but that has yet to stop the 74,587 small businesses now employing 138,517 people and counting! It’s a fantastic time to become an entrepreneur in this great state; 2022 saw 8,509 new businesses open their doors. The Tax Foundation has also ranked Alaska’s state tax environment as third best in the US – making it a fantastic place to start a business! Keep reading to learn everything you need to know about launching your new venture!

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1. Research and Plan your Business

Before starting your business, it is crucial to conduct preliminary research on your business idea and develop a comprehensive business plan. Market research will provide clarity on your target market, competitors, and unique selling point (USP).

Once you have gathered this information, it is important to draft a well-thought-out business plan. Although you may be tempted to skip this step and dive right into action, a solid business plan will serve as your support system throughout the entire process. It will guide you in pursuing growth and increase your chances of success. In fact, researchers at Harvard Business Review found that businesses with a clear and written business plan were 16% more likely to succeed compared to those without a plan.

It is worth noting that your business plan doesn’t have to be overly complex. Even a concise plan of just three pages can serve as a strong foundation. Your business plan will provide a framework for the future of your business and answer key questions such as:

• What sets you apart from the competition (USP)?
• Who is your target market?
• What will drive your revenue?
• How will you market and promote your business?
• What resources do you need to get started?

By investing time and effort into developing a well-crafted business plan, you will set yourself up for success and ensure a clear path forward for your business.

Recommended Additional Reading:Unlock the Secrets to Creating a Business Plan that Works

2. Choose a Business Structure

Next, it’s time to choose a legal structure for your business. Consider your comfort level with personal liability risk, desired tax status, and source of capital. There are four common types of business structures to explore:

• Limited Liability Company (LLC)
• Corporation
• Sole Proprietorship
• Partnership

Limited Liability Company (LLC)

According to Small Business Administration, LLCs are the most common formal business entity types. They’re a separate legal entity from their members – the people who own them. This provides owners with limited personal liability. If the LLC incurs debt or gets sued, this legal structure can protect the owners’ personal assets.

LLCs allow for an easy-to-manage business entity with favorable tax treatment. They can default as pass-through entities for taxation but are also flexible to elect C-Corporation or S-Corporation taxation. This flexibility lets owners focus on their core business without potentially complicated corporate tax planning. Therefore it shouldn’t be surprising that LLCs have become the go-to choice for many small business owners.

The level of protection and tax advantages offered by LLCs makes them a top choice for entrepreneurs who want limited personal liability protection and favorable tax treatment.

Additional Information:Pros and Cons of LLCs

Corporation

A corporation is a separate legal entity from its owners. It possesses similar rights and responsibilities as individuals, such as entering legal agreements, borrowing money, hiring staff, owning assets, and paying taxes. Limited liability is a key advantage, where shareholders profit from dividends and stock appreciation without being responsible for the company’s debts. Many large businesses, like Microsoft and Coca-Cola, are corporations. Some corporations have separate business names, like Alphabet Inc. doing business as Google. By separating ownership from operations, corporations enhance long-term planning and can exist indefinitely. They also provide an efficient way to raise capital for business expansion, stimulating economic growth.

Additional Information:What is a Corporation as a business?

Sole Proprietorship

If you don’t register a single-owner business in Alaska under a formal structure like an LLC or Corporation, you’re automatically a sole proprietor. It’s a straightforward way to start a business and gives you complete control over your business. In a sole proprietorship, you and the business are legally seen as one and the same, which means any debt the business incurs is your personal liability.

Sole proprietorships are not the best pick for high-risk business ventures, as raising money can be challenging since you can’t sell stock, and banks are often hesitant to give loans to sole proprietorships. Nonetheless, a sole proprietorship can be the way to go for low-risk business ideas when you want to test their business concept before going for something more formal.

Additional Information:A Guide to Sole Proprietorships: Pros and Cons

Partnership

A general partnership is when two or more individuals agree to share a jointly-owned business’s responsibilities, assets, profits, and financial and legal liabilities. It’s important to know that partners may be personally responsible for unlimited liability in a general partnership. Unlike a limited liability partnership or an LLC, liabilities aren’t capped. Partners can be held personally accountable for the business’s debts and may even have their assets seized. It’s also important to remember that any partner can be sued for the business’s debts. Even if your partners are sued, you can also be held personally liable. Since a general partnership is a pass-through entity, the partnership’s income goes straight to the owners. Partners report their share of the profits or losses on their personal tax return. Remember, the partnership itself isn’t taxed.

Additional Information:Pros and Cons of Operating as a Partnership

3. Choose your Business Name

Every business needs a name. The next step for your Alaska business should be to choose one so that you can get ready for business registration. Your business name helps to form its identity and can affect how your business is viewed, so be careful to choose something that works for your business. Your business name should help you to start building your brand identity. You also want it to be something your customers can easily pronounce, remember, and search online.

Use our guide on how to think of a business name if you need more detailed help creating your name.

4. Register your Business

Once have made the decisions regarding your business structure and name, the next step is to focus on officially registering your business. The process for getting your business name registered in Alaska may differ depending on the chosen business structure. Let’s explore each of them briefly.

• Register an Alaska LLC
• Register an Alaska Corporation
• Register an Alaska Sole Proprietorship
• Register an Alaska Partnership

Register an Alaska LLC

Forming an LLC in Alaska requires you to file Articles of Organization (Form 08-484) with the Alaska Division of Corporations which has a filing fee of 250. Before you can complete your filing, you first need to check that no other business is using the name that you want to use. Carry out a Alaska business name availability search to do this, and you can file your Articles of Organization (Form 08-484) if your name is available. If not, you will have to come up with a new one. Your filing needs to include the name and address of your LLC, as well as the owner’s or owners’ contact information. It is also necessary to appoint a Alaska registered agent. At this stage, it’s also smart to create an operating agreement to outline how your business will operate, who owns how much of the LLC, and what voting rights owners have.

Register an Alaska Corporation

To a corporation in Alaska, you need to submit Articles of Incorporation to the Alaska Division of Corporations and pay the 250 filing fee. It is also crucial to appoint a registered agent who will handle service of process documents. Moreover, drafting a corporate bylaws document will provide you with a comprehensive set of internal operating rules for your corporation.

Register an Alaska Sole Proprietorship

The process of starting a sole proprietorship in Alaska is a simpler process than forming an LLC or Corporation. You aren’t required to file any documents at the state level, but there are some formal steps that you might need to take. Since sole proprietors are required to operate under their personal name or a name that at least includes their last name, you’ll likely need to file an Alaska DBA (also known as a Business Name). If you want to use a Business Name, instead of your own name, you need to register your an Alaska a Business Name with the state.

Register an Alaska Partnership

A general partnership in Alaska does not require any formal filings to start. However, it is a good idea to write a partnership agreement document. Although it’s not legally required, it ensures you are clear about how decisions are made within the business. This can help to deal with disputes later. If the partners’ last names are not used in the business name, you will also need to file an Alaska a Business Name with the state.

5. Get an EIN

An Employer ID Number (EIN) is used by the IRS for both tax filing and employment. Not every business is required to have one, but it can be useful even for businesses that don’t need one. A Corporation, Partnership, or an LLC needs to have an EIN. Even if your business is a sole proprietorship or an LLC with only one owner, getting an EIN is a good idea because you can use it on forms in place of your social security number.

6. Register for Alaska Sales Tax

The State of Alaska does not impose a sales tax. However, it is important to be aware that certain local municipalities have their own sales tax regulations. If your business is subject to sales taxes within the state, it is necessary to contact the respective local municipal government for information on their specific regulations and required forms. You can find the contact information for these local authorities through the Division of Community and Regional Affairs Mapping, Analytics, and Data Resources (MADR) Section.

Cities and boroughs in Alaska have broad authority granted by the state constitution and other state laws to enact sales tax ordinances and determine taxable items. There are very few items exempted by state law, and for information on non-taxable items, it is best to directly contact the municipality. Although there are certain exemptions outlined in state law, exemptions beyond these are determined at the local level.

7. Apply for Alaska Business Licenses and Permits

To ensure legal compliance with federal, state, and local laws, it is important for your business to obtain one or more business licenses and/or permits. The specific licenses and permits required will vary depending on various factors, such as the nature of your business, the products and services you offer, the data you collect, and your location. It is crucial to understand and adhere to these requirements to operate your business smoothly and within the bounds of the law.

Federal Licenses and Permits

Your business may need a license or permit to operate legally if your business is involved in an activity that is regulated at the federal level, such as:

• Agriculture
• Alcoholic beverages
• Aviation
• Firearms, ammunition, and explosives
• Fish and wildlife
• Commercial fisheries
• Maritime transportation
• Mining and drilling
• Nuclear energy
• Radio and television broadcasting
• Transportation and logistics

For more detailed information on federal business licenses and permits visit the Small Business Administration: Federal Licenses and Permits page.

State and Local Licenses and Permits

Per AS 43.70.020(a) a business license is required for the privilege of engaging in a business in the State of Alaska.For more detailed information visit the Department of Commerce, Community, and Economic Development Business License page.

8. Open a Business Bank Account

A separate business bank account is important to have for your business. It ensures you can avoid mixing up your personal and business finances, known as “co-mingling funds”, which can cause problems for you later. Keeping your finances separate makes it easier to maintain your accounting and bookkeeping. It also means you won’t risk losing your limited liability if your business is an LLC or Corporation. Separate business finances protect you from debt and legal issues.

Not only does this make bookkeeping and accounting much harder, but it can also result in losing your limited liability status if you’re an LLC or Corporation. If you mix your personal and business funds, you can put yourself at serious legal risk if your business is sued by piercing the corporate veil. By opening a dedicated business bank account and use it strictly for business activity, you can avoid these risks.

Take a look at our guide to opening a business bank account to find more details on how to choose a bank account provider and open up your business bank account.

9. Set Up Credit Card Processing

If your business doesn’t accept debit and credit card payments, you could miss out on a lot of business. Whether you have a brick-and-mortar business, an online business or need to accept payments on the go, card processing is important.

For a more detailed breakdown of the topic, see our Guide: a href=”https://stepstostartingabusiness.com/how-to-accept-credit-card-payments/” target=”blank”>How to Accept Credit Card Payments

10. Establish an Accounting System

An accounting system allows you to track and manage your business finances in a number of ways. When you set up your accounting system, you will be able to create budgets, keep an eye on your incomings and outgoings, and create financial reports for your business.

Our Small Business Accounting 101 guide gives you more help on how to set up your accounting system, making important decisions about your accounting, and the essential steps, which you can find here.

11. Get Business Insurance

Don’t forget one of the most important steps of starting a business in Alaska – taking out business insurance. The right insurance will protect your business in various ways. If you experience a lawsuit, an accident occurs, or a natural disaster or weather event takes place, your business is protected with insurance in place.

Check out our guide on Small Business Insurance, where we go over the six types of business insurance so that you can make sure you’re covered.

12. Hire Employees and Set Up Payroll

Hiring employees makes it easier to grow your business. When you hire employees, you’ll need to set up payroll to ensure they are paid properly and to withhold any necessary taxes.

There are two items that employers must complete to be federally compliant when hiring new employees. You must verify that any employee is eligible for employment in the US and obtain a signed IRS Form W-4 to ensure you are withholding the correct amount for federal taxes. For more detailed information, visit the IRS page for Businesses with Employees.

Since Alaska has a state level income tax, you’ll need to withhold taxes from your employees and remit them to the state. In addition to this you’ll also need to register for unemployment insurance. Luckily in Alaska both of these registrations are done with the None. For more specific information about your requirements as an employer in Alaska visit the Alaska Small Business Development Center: Hiring Your First Employee Checklist for Employers page for more info.