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What Legal Requirements Are Needed to Start a Business?

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by Contributing Author

Starting a business is a challenge in itself. One of the most complicated parts is handling legal matters with a new business venture. When starting a business, as a new business owner, you should ensure that you are acknowledging all legal requirements for starting a small business. Many legal requirements to start a business include intellectual property, income tax, business loans, financial regulations, and more. 

So, to form a business structure, you must ensure your company complies with all these legal obligations. In doing so, you can truly focus on business development. Moreover, it will protect your business by avoiding any sort of legal pursuits like lawsuits, fines, or something worst case, such as jail. You should also learn about the U.S. code before starting a business.

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Fortunately, a whole list of legal resources for starting a small business is available. You can use this to plan and maintain the legal structure for your small business. Check these off from your to-do list and stay away from legal troubles. Remember, the sooner you consider these things, the more time you spend focusing on your goods or services trading business.

How To Legally Start A Business And Protect Your Business?

To start a new business, you need a great business idea and comply with the legal requirements for setting up a successful business. So, here is an easy guide that you can follow to launch your business legally.

Form a Limited Liability Company or Corporation

The primary legal obligation of the owner of a small business administration is to determine the business structure. You choose a Limited Liability Company (LLC) or create a Corporation. Both of these business structures come with their set of benefits and drawbacks. Hence, it is best to dedicate your time to research and choose one to start the company.

  • Limited Liability Company

The Limited Liability Company or LLC covers personal liabilities under many circumstances and conditions. For example, if your business goes bankrupt, gets sued, or in any circumstances, you don’t have to risk your personal properties, such as your home and cars.

In this business structure, you can file your business’s income as a part of your personal ITs. However, you may have to pay the self-employment tax.  

  • Corporation

A corporation is an opposite business structure where the legal entity remains separate from the company’s owner or group of owners. Here, the business structure offers considerable individual protection from liability, but they are quite complicated and expensive to create. Besides, a corporation files for independent income tax on their profits. 

Maintain Proper Founders Agreement Paper

If your company constitutes more than one business owner, it is very important to acquaint each person with their rights and accountability in the business. Although this depends on the business structure you choose, in the case of a corporation, you have to get a formal shareholder operating agreement along with the articles of incorporation.

For LLC business structure, you will require the operating agreements of LLC and the articles of the organization in addition to the designated legal counsel to ensure ethical standards.

Register for the Name of Your Business

Once you select the right business structure and number of owners, it’s time to register the business name. The name of your company should reflect your trading point. Also, choose a name that other owners have not already claimed. Registration for this matter also has four different ways, each serving its purposes.

  • Trademark: Protects the company legally at the federal level
  • Entity Name: protects your company legally at the state level
  • Doing Business As (DBA): No protection from legal matters but may require depending on the location and the business structure.
  • Domain Name: Claims the web address of your business

Application for the Federal Tax Identification Number

Your company’s Federal Tax Identification Number is the Employer Identification Number (EIN) that permits you to legally perform tasks, including applying for business licenses, opening a company bank account, and hiring employees. Plus, you can pay taxes. All you need to do is apply for the number online through the IRS website.

 EIN is unnecessary while operating the business as a single-member LLC and sole proprietor. Still, you can obtain EIN to ensure a separation between personal and business liability. It also protects your SSN on business documents. You can also protect against business identity theft. 

Obtain insurance for your business

You will be liable for financial and legal issues as you own your business. You will have a direct impact when any issues affect your business. You can apply for insurance to prevent liability losses and protect your business. 

However, insurance is of different types, and you need to choose it based on your business size, industry, type of clients, and other factors. The most common insurances chosen for businesses are- 

  • General Liability Insurance-

Independent contractors can choose general liability insurance that ensures coverage for different incidents. You will not have a financial burden when there is any accidental damage to your customer’s property. 

  • Insurance for omissions and errors

It is also referred to as professional liability insurance, which ensures protection when your client has incurred financial damages because of omission and errors in a project.

  • Home-based business insurance

You may have set up your home office to start a business. In this case, also, you need an insurance policy for security. An insurance policy, specially designed for a home-based business will protect you and your clients.

So, these insurances will protect your business and ensure security in the future.



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