If you’re a new business owner, make sure you are compliant at the start to avoid costly mistakes later.
Here are some of the legal requirements that every business owner should understand and implement if they are starting a business.
A business attorney will help make sure you’ve covered all your legal bases and can take care of most of the critical paperwork involved in a business start-up or acquisition.
Choose a Business Structure & Name
Which legal structure is best for starting a business? There are several structures to choose from, and it’s always possible to change the structure as your business grows.
Once you understand each structure’s basics, your business lawyer and accountant can help you understand legal requirements and tax details.
May businesses today are sole proprietorships. This is the simplest business structure, with just a single owner responsible for all debts and assets. This is the best choice if you have low overhead and small-scale business — for instance, if you are starting a virtual business on your own from home.
This structure is the least complex and the lowest risk, but owners are personally liable. If you feel the need to raise more capital, it might be to your advantage to enter into a partnership.
If you are formally starting a business as a sole proprietorship, you need to register your business with the Secretary of State.
Limited Liability Company (LLC)
An LLC, for the most part, separates your finances from company profits. The designation means that you are not personally liable for the business.
So, for instance, if the business goes bankrupt, your personal property won’t be seized.
Here you will include business income in personal income taxes, but there is self-employment tax.
Partnership or Limited Liability Partnership
A partnership is not much different than a sole proprietorship, but you may choose to form an LLC partnership to keep personal assets separate.
A corporation limits your liability with the business because it is treated as a separate entity. It has a very different set of legal requirements than its less complex counterparts.
One benefit of incorporating is that corporations are taxed differently – taxable income with a corporation is profits after salaries and bonuses are paid out. (This is the opposite of the “pass-through” tax structure.)
Most people who are just starting a business will not be in a place where incorporation is beneficial or necessary.
But a small business can incorporate if:
- They want to issue stocks
- You are profitable enough that it’s worthwhile tax-wise
- You want to gift shares of the company as part of estate planning
Incorporating rules vary by state, but you will always start with articles of incorporation.
If you are considering a corporation, learn about some common mistakes you’ll want to avoid.
Register Your Business
Once you have a name, the next in the list of legal requirements is registering your business. Registering your business involves a few steps, some of which vary by state.
- Use this checklist as a baseline:
- Do you need to register a trademark?
- Do you need to register a “doing business as” (DBA) name?
- Choose a domain name and register it.
- Get an employer identification number (EIN) from the IRS
- Register with your State Labor Office
- Have your accountant set up a payroll system to withhold taxes
- Register with the state for a state tax ID number (depending on what state you are in)
Recruiting and Hiring
Unless you are an HR expert, chances are you are not as familiar with hiring as you could be if you are just starting a business. That’s okay — you shouldn’t need to do everything. You may even want to hire an HR consultant to help you with hiring when the time comes.
To familiarize yourself with these topics and statutes before recruiting and hiring.
- Workers compensation coverage
- Title VII of the Civil Rights Act
- Citizenship laws
- State discrimination laws
- Legal background check procedures
- Occupational Safety and Health regulations
- The Equal Opportunity Employment Commission
- The US Department of Labor website.
- Fair Labor Standards Act
- Onboarding taxes and benefits forms
- Hiring/work contracts
Your accountant should be on top of which forms to include about legal requirements pertaining to payroll and taxes but check with them to be sure.
Permits, Licences, and Insurance
Depending on the type of business and industry in question, you may be required to obtain special permits and licenses.
Insurance can help to protect you both personally, and regarding business risk. For instance —
- Liability insurance to protect you from financial loss, property damage, etc.
- Product liability insurance
- Commercial property insurance
Some companies specialize in selling insurance for specific sectors and industries but do your research first. A business lawyer will be able to consult and make recommendations in this area as well.
Open a Business Bank Account
Open a business bank account with a trusted financial institution when starting a business. This will keep your business expenses and details separate from your income.
Most banks have special business packages. When you go, be sure to ring your ownership agreements, business license, and EIN (or SSN).
Even if you are a sole proprietorship with a smaller balance, this is an important step.
A Lawyer Can Help Your Business Thrive
Growing a business can be challenging, but everything is so much easier with an excellent support team behind you.
A lawyer with in-depth business experience can help you understand legal requirements, keep you organized, and complete vital paperwork.
This can help to build a more resilient business so that you can feel great about future growth.
Click here to schedule a 30-minute consultation or call 1-855-976-3783 for more information.
If you enjoyed this article, you might like these too: