How to Start a Business in Indiana

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Starting a business in Indiana can be an exciting and rewarding journey. With 83,518 new businesses formed in the state in 2022, it’s clear that entrepreneurship is thriving. And for small businesses, favorable conditions abound – according to a 2022 US Small Business Administration report, there are 534,640 active small businesses spread across the state that employ over 1.2 million people. The business tax environment in Indiana is also among the best in the U.S., with a 9th place ranking according to Tax Foundation filing. Indiana has below-average costs to start a business, with DBA filing fees for sole proprietors and partnerships at $35. LLCs are also lower in price than the national average and have a state filing fee of only $95 – ranking 15th lowest. Whether you’re starting in Indianapolis, Fort Wayne, South Bend, or a smaller city like Westfield, St. John, or New Haven, this guide will help you start your business in Indiana.

1. Research and Plan your Business

The process towards starting a business in Indiana demands a well-thought-of initial business plan and thorough research of the business idea. Before actually launching a start-up, conducting due diligence becomes necessary. Comprehensive market research, including analysis of your competitors, becomes essential in determining the potential factors for your business to succeed. Your research should provide a clear understanding of your target customers, your competitors, and how your product or service offers a unique solution.

When you have done your preliminary research, you can use this information to develop an in-depth business plan. Crafting a business plan is an essential part of launching and growing your new business. Despite the general view of having a comprehensive understanding of your business as a reason to forego the business plan, statistics show otherwise. In fact, according to a study by the Harvard Business Review, businesses who created a formal business plan were 16% more likely to succeed than their contemporaries who didn’t have a business plan. Therefore, putting in the effort to create a professional business plan will increase the likelihood of a successful start-up.

Recommended:Learn How to Craft a Winning Business Plan

2. Choose a Business Structure

Now, it’s time to move on to the next crucial step: selecting a legal structure for your business. It is important to carefully evaluate the level of personal liability risk you are comfortable with, determine the desired tax status, and identify your source of capital. These considerations will help you choose from the four most common types of business structures.

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

Limited Liability Company (LLC)

Limited Liability Companies (LLCs) are the most commonly adopted formal business structures for small businesses. An LLC is a distinct entity from its owners (also known as members), providing them with personal liability protection. This means that the members can rest easy knowing that their personal assets are safe if the business is sued or has outstanding business debts.

LLCs have numerous benefits, including a preferred pass-through taxation standard. However, they also have the choice to adopt C-Corporation or S-Corporation taxation standards. This flexibility is highly beneficial and is one of the main reasons why so many small business owners opt for LLCs.

Additional Information:What is an LLC and How Does it Work?

Corporation

Corporations are another option for business owners who want to establish a separate legal entity. The shareholders own a corporation through a percentage of shares issued as stocks. While setting up a Corporation has benefits and disadvantages, it offers extra liability protection. However, one thing to remember is that Corporations often have higher tax rates as they must pay corporate taxes before the profits are distributed to shareholders. Overall, establishing a Corporation means taking on additional responsibilities and important decisions that can be challenging but enhance your business ventures.

Additional Information:What is a C-Corporation?

Sole Proprietorship

If you’re looking for the most straightforward business setup for a single-owner enterprise in Indiana, consider a Sole proprietorship. Sole proprietorships require no formal paperwork or registration is outside of the required business licenses and permits. But it’s important to note that while it’s inexpensive to start, sole proprietorships don’t offer liability protection. In case of legal problems or accumulated business debts, creditors can go after the owner’s assets to cover the losses. It’s a good idea to weigh the pros and cons of this business structure before making a final decision.

Additional Information:What is a Sole Proprietorship and is it a good fit for your business?

Partnership

When two or more people co-own a business, the simplest structure is a general partnership. It’s like LLCs in that they benefit from pass-through taxation – this means they don’t pay taxes directly. Instead, they pass profits or losses on to their owners, who then pay taxes on them.

General partnerships are also an informal legal structure, just like sole proprietorships. This means the business isn’t seen as separate from its owners in the eyes of the law. However, this has a significant downside. Members of the partnership have unlimited personal liability for their actions, leaving them open to risks associated with the business.

Additional Information:Partnerships Defined

3. Choose your Business Name

Now that you’re well-informed about legal structures, it’s time to shift our focus to the next step: choosing a great name for your Indiana business. While you may be tempted to go with the first thing that comes to mind, thinking that your product or service is what matters most, remember that the name is what initially grabs attention. In fact, the choice of name can significantly impact the success of your business, as it plays a crucial role in your marketing efforts once your business is established. Therefore, it’s worth taking the time to select a good name.

If you find yourself lacking creativity and struggling to come up with suitable names, consider the three essential ingredients of a great business name: creating an identity, being memorable and easy to recall, and being easy to search and find. For a comprehensive guide on creating a remarkable business name, be sure to check out our resource: How to Come up with a Business Name

4. Register your Business

Following the choice of business structure and name, you must now turn your attention to getting your business in Indiana officially registered. The procedure for this varies based on the business structure, so let’s go over each briefly.

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

Register an Indiana LLC

Indiana LLCs are formed by filing a document known as Articles of Organization (Form 49459) with the Indiana Business Services Division (INBiz), which has a filing fee of 95. Before doing so, you must determine if the name you have chosen is not already in use. You can do this by completing a Indiana business name availability search. Once verified, you can file the Articles of Organization (Form 49459). The filing must include the LLC’s legal name, the owner(s) contact information, address, and a designated Indiana registered agent. While not legally required, you will also want to create an operating agreement to establish the basic rules of how your LLC will function, list ownership percentages, and detail voting rights.

Register an Indiana Corporation

To form a Corporation in Indiana, you must file a document called Articles of Incorporation with the Indiana Business Services Division (INBiz), which has a filing fee of 96.5. Additionally, you will need to appoint a registered agent who will be able to collect service of process documents. Designing the bylaws and internal rules for operations is a key way that you can make sure your organization is set up for success.

Register an Indiana Sole Proprietorship

At the state level, no formal filings are necessary to start a Indiana sole proprietorship. Sole proprietorship owners are required to include their name in the business name. If you wish to carry out your business under a name that does not include your last name, you will have to register an Indiana DBA, formally known as an Assumed Business Name, with the county.

Register an Indiana Partnership

Similar to sole proprietorships, general partnerships do not require the filing of any official documents to be set up. Also, they must apply for an Assumed Business Name if they plan on doing business under a name that does not include the partners’ names. It is also recommended that the partners create a partnership agreement as it settles many arguments before they arise and outlines a few technicalities such as power distribution and the decision-making process.

5. Get an EIN

Once you have taken the steps to legally form or establish your business, you want to get an EIN. An EIN (an acronym for Employer ID Number) is an IRS identification number for tax filing and employment purposes. You can think of an EIN as the business equivalent of a social security number. Any business formed as a Corporation, Partnership, or LLC is required to obtain an EIN. Even if your business is not required to get an EIN, it’s highly recommended that you apply for one. EINs are required for many business filings and can be used in place of providing your SSN, which can help protect against identity theft.

6. Register for Indiana Sales and Use Tax

If your business has a Indiana sales tax nexus, you sell taxable goods or services to Indiana residents, or if your buyers have to pay sales tax, you’ll need to collect and remit sales tax in Indiana. To ensure you comply with state and local laws, you must effectively manage the taxes you collect. Neglecting this responsibility can lead to penalties and interest charges.

How to Know if you need to collect Sales Tax in Indiana?

As the guidelines provided by the Indiana Department of Revenue, a business establishes sales tax nexus in Indiana when it has a physical presence in the state. This includes various scenarios:

• Operating and maintaining an office, distribution center, warehouse, or any physical location where business activities are conducted.
• Engaging independent sales representatives, employees, or agents who conduct business within the state, which includes activities like selling, delivering, or accepting orders for taxable items in Indiana.
• Performing assembly, installation, servicing, or repair of products within Indiana.
• Owning, renting, or leasing real property or tangible personal property in Indiana, including the utilization of computer servers or software to solicit orders for taxable items.
• Delivering goods to customers in Indiana through company-owned or leased trucks.
• Maintaining inventory in Indiana utilizing a third-party fulfillment service, such as Fulfilled by Amazon (“FBA”).

Additionally, business that do not have a physical presence in Indiana, can establish economic nexus by exceeding a certain annual sales threshold in the state. Indiana mandates that an out of state business (also referred to as a remote seller) register with the Indiana Department of Revenue to collect and remit sales and use tax if the business has gross sales revenue in the state of either:

• $100,000 in sales in the current or preceding calendar year.
• The business has completed over 200 transactions in Indiana in the current or preceding calendar year.

Looks like Jasper is overloaded at the moment, please bear with us and try again shortly.Gross sales revenue is defined by the Indiana DOR as including:

• Taxable and untaxable sales, including exempt sales.
• This includes tangible personal property, electronically transferred products, and provided services.
• Gross revenue and transaction count should include all sales made on various platforms, including marketplaces and the remote seller’s website.

For more detailed information visit the Indiana Department of Revenue: Sales Tax page or contact a qualified Indiana tax professional.

7. Apply for Indiana 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

Indiana does not have a general business license at the state level, but local licenses are often required.For more detailed information visit the Indiana Business & Agriculture Business License page.

8. Open a Business Bank Account

It’s essential to separate your business transactions and personal transactions to protect your personal assets. Mixing your personal and business banking activity is known as “co-mingling funds” and can cause your business severe problems. 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. To learn more about opening a business bank account, visit our detailed how-to guide. Our guide “How to Open a Business Bank Account” goes over how to choose a bank account provider and the documents you’ll need to open your account.

9. Set Up Credit Card Processing

For most businesses, it’s vital to accept credit card and debit card payments. Credit and debit cards now represent around 60% of all transactions over $10. As a result, accepting card payments is basically a requirement to stay competitive in the modern business environment.

For more information, see our guide, How to Accept Credit Card Payments

10. Establish an Accounting System

Setting up an accounting system allows a business to track business expenditures and create reports to gain insight into your business’ performance. By establishing an accounting system, you can quickly and easily create budgets, manage cash flow and generate the required financial reports to know how your business is doing.

For a more in-depth breakdown, visit our Small Business Accounting 101 guide. Covered in the guide are the steps to do small business accounting, including how to choose between cash basis and accrual basis accounting methods.

11. Get Business Insurance

One of the most overlooked aspects of starting a new business in Indiana is obtaining business insurance. Having the proper business insurance coverage helps to mitigate your risk so that you’re covered in the event of an accident, natural disaster, or lawsuit.

In our Small Business Insurance Guide, 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

If you want help running your business, you’ll want to consider hiring employees and setting up a payroll. Employers are responsible for reporting new hires and verifying their employment status.

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 Indiana 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 Indiana both of these registrations are done with the Indiana Department of Revenue. For more specific information about your requirements as an employer in Indiana visit the Indiana New Hire Reporting Center: Reporting Fundamentals page for more info.