Starting a business can be an exhilarating time, where everything seems full of potential and purpose. But amidst the excitement, navigating the logistics of launching a business can be daunting for the first-time entrepreneur.
Legal tips for starting a business
Starting a business doesn’t need to be scary. Here are seven basic steps to address the logistics and make sure that your new business is legit:
1. Check that your business name is available
Before you invest too much time and money in your branding, you should make sure that your proposed business name is legally available; in other words, that it won’t conflict with the name of an already existing business. By checking availability upfront, you’ll have the peace of mind of knowing that you won’t be ordered to abandon your business name a year from now because of a trademark dispute.
2. Pick a legal business structure
Every business has a business structure. For example, some are sole proprietorships, partnerships, Limited Liability Companies (LLC) and Corporations. If you never formally apply for a business structure with the state, then your business is a sole proprietor (single owner) or general partnership (multiple owners) by default. These are the easiest business structures to manage, but they don’t offer any kind of liability protection for the owner and their personal assets.
Many small businesses opt to form as an LLC, as this business structure offers liability protection in case your business can’t pay its bills or defaults on a contract. It also entails fewer administrative formalities than a corporation. You can always talk with a CPA or small business advisor to determine what structure is right for your situation.
3. Register your business name
You’ll need to register your business name with the state, so everyone knows who’s behind the business. There are a couple of different ways to do this. If you are forming an LLC or corporation, this step automatically registers your name with the state. However, if you choose to stay as a sole proprietorship or general partnership, then you’ll need to register your business name with by filing a Doing Business As (DBA).
Registering your business name ensures that you’re legally able to operate your business under that name in the state. It also ensures that no one else can use your business name in your state.
4. Get a federal ID tax number
A Tax ID number (also called an EIN, Employer Identification Number) is like a social security number for your business. It’s how the IRS tracks your company’s activities. You can apply for a Tax ID number online with the IRS (it’s free). Any business with employees is required to have a Tax ID number. But even if you’re a sole proprietor, it’s smart to apply for a number for your business. This way you won’t have to use your personal social security number for business matters.
5. Open a business bank account
Photo by Pawel Czerwinski on Unsplash
Once you have registered as an LLC, Corporation, or DBA and have gotten your Tax ID number from the IRS, you’re able to open a business bank account. This will let you accept payments made out to your business name as well as help keep your business and personal finances separated.
6. Get your local permits
Depending on your type of business, you may need to get local business licenses or permits from your state or county. For example, you may need a sales tax license, health department permit, zoning permit, or professional license. You can contact your local office or check out a site like BusinessLicenses.com to learn more about the specific licensing requirements for your business type and location.
7. Get familiar with employer laws and responsibilities
There are quite a few legal obligations that go along with hiring employees for your business, including payroll and tax withholding, workers’ comp, OSHA regulations, wage/hour requirements, and health insurance. You’ll need to make sure you understand your obligations before interviewing any potential hires. A good starting point is on the Small Business Administration (SBA) website.
The bottom line is that when it’s time to turn your dreams into reality and become your own boss, don’t overlook your legal obligations. Just follow these few simple steps, and you’ll have your business’s legal foundation established for years to come.
