You can have a rock-solid entrepreneurial dream supported by an amazing team. But to get your organization running, you’ll need to be aware of the legal matters at hand. If you run a business without the approval of the right authorities, you may face expensive repercussions in the forms of fines, lawsuits, or even prison time!
As there are so many legal requirements in place to start a company, it can be difficult to navigate through what you need to know. In this article, we’ll briefly go through some of the things you ought to comply with to turn your dream into a valid, legal entity.
However, this is only a rough guide to offer you a sense of direction as laws can also differ from state-to-state. This shouldn’t replace professional legal advice!
Thinking of a business name
Businesses are registered by the state, so it’s possible that there’s also an ABC Company ten hours away from you. As you settle down with a name, be sure you’re clear of your goals. If you plan on expanding your brand nationwide, you’ll need to look into their trademarking steps or you could face some legal issues. It’s recommended that you trademark your company name down the line.
A US trademark will only have jurisdiction within US borders. If you wish to build a brand presence in Canada, you will need to file for a separate trademark with the advice of a Canadian-based IP firm like Heer Law.
Choose the right business structure
Before you even think about tax implications, you need to think about how you structure your business. There are so many business structures recognized by the US state governments, however, the most common ones are:
- Sole proprietorship
- General partnership
- Limited Partnership (LP)
- Limited Liability Company (LLC)
- C-corporation
- S-corporation
Most small businesses start with a sole proprietorship. This is especially true when the business owners are doing most of the legwork and have very few employees under them. Sole proprietorships are easy to set up but owners risk their personal assets if they come into legal battles or go down under.
To protect personal assets, most owners would form an LLC. If a customer (or staff) were to sue you for injury or neglect, they don’t have to worry about having to sell off their homes or go bankrupt. However, forming an LLC means more bookkeeping and accounting work.
Apply for an Employer Identification Number (EIN)
EIN, also known as your federal tax ID, allows you to pay your taxes and apply for various business licenses. This form of identification is also needed to legally hire employees and file their tax returns.
Sole proprietors and LLCs that don’t hire employees don’t require an EIN, but can benefit from applying for one.
Applying for Relevant Licenses and Permits
There is no way to cover the various licenses and permits you would need in this article, as these can differ by state and/or municipality. However, just to provide a sense of direction, business licenses can be divided into three levels, which are federal, state, and local licenses.
Generally, when you are doing business regulated by a federal agency such as the Bureau of Alcohol, Tobacco, and Firearms, you will need a license no matter where you are.
States may have their own unique requirements too. For example, many require a state license to serve alcohol.
On the municipality/local level, you may need a general business license to operate to conduct business activities.
If you are running a home-based business, be aware of any zoning requirements imposed by your city. Some cities restrict business activities in residential areas.
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