by Contributing Author
Starting a business is a challenge in itself. One of the most complicated parts is handling legal matters that come 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. There are many legal requirements to start a business which include intellectual property, income tax, business loan, financial regulations, and more.
So, in order to form a business structure, you must make sure that 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, there is a whole list of legal resources for starting a small business 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 get to focus on your goods or services trading business.
How To Legally Start A Business And Protect Your Business?
To start a new business, you don’t only need a great business idea but also have to comply with the legal requisites 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 either go for 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 then choose one to start the company.
- Limited Liability Company
The Limited Liability Company or LLC covers personal liabilities under many circumstance 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 the income of your business as a part of your personal ITs. However, you may have to pay the self-employment tax.
A corporation is an opposite business structure where the legal entity remains separate from the owner or group of owners of the company. Here, the business structure offers a considerable level of individual protection from liability, but they are quite complicated and expensive to create. Besides, a corporation files for independent income tax on their amount of 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 now 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 of which serves 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
The Federal Tax Identification Number of your company 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 not needed 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
As you are the owner of your business, you will be liable for financial and legal issues. When any issues have affected your business, you will have a direct impact. To prevent liability losses and protect your business, you can apply for insurance.
However, insurance is of different types, and you need to choose it based on your business size, industry, type of clients, and some 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 types of incidents. When there is any accidental damage to your customer’s property, you will not have a financial burden.
- 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, especially 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.
You have now learned the steps for establishing a new business. You can also apply for a business loan to buy equipment, hire employees, and invest in other resources.