Starting a new business can be exciting, but the legal steps involved can feel confusing or overwhelming. Still, it’s important to know the rules you need to follow. Making sure your business meets all legal requirements will help it stay strong and successful over time.
In this blog, we’ll explain the basic legal steps you need to take when starting a business. At Carson Legal Strategies, the goal of our business formation attorneys is to make things clear and give you helpful information so you can make good decisions moving forward.
Define and Establish Your Company
Required licenses and registrations are there to help your business run smoothly wherever you operate. Every state has its own rules for starting a small business, and those rules can change if you plan to work in more than one state.
To start a successful business, you need to set up your company the right way, make clear agreements with any partners, get the licenses you need, and protect your business name, slogan, and other important assets. Keep reading to learn more about each of these steps.
Draft a Founder’s Agreement
If you’re starting a business with someone else, it’s important to clearly write down what each person is responsible for and what rights they have. A founders’ agreement explains who does what and who is responsible for which parts of the business. This document can help protect you and your share of the profits if you and your partner ever disagree later on.
Form Your Corporate Entity
When you begin to set up your company, you can pick from one of four kinds: a partnership, a sole proprietorship, a limited liability company, or an S corporation. Every option has different functions and provides you, as the owner, with different types of protections.
- Partnership: This is when two or more people own a business together. There are a few types of partnerships, and some offer more protection than others. You usually have to file some paperwork, and in many cases, the partners can still be held personally responsible for business debts.
- Sole proprietorship: This is for someone running a business alone. In most states, you don’t need to file anything to set it up, but the owner has no protection from personal liability if something goes wrong.
- LLC: This type of business can have one owner or many. It offers stronger protection, meaning the owners are usually not personally responsible for business debts or legal issues.
- S Corporation: This is a type of corporation that protects owners from personal liability and can also offer tax advantages.
S corporations and LLCs do a better job of protecting your personal assets, which can save you both money and time in the event that something goes awry. If you’re starting a business with other people, a partnership is easier to set up than some other business types, depending on how you plan to run things.
Register Your Company Name
With the exception of sole proprietorships that let you use your own legal name, every type of business must be filed with the state under a unique name. Once you check to make sure that no one else is using the name you want, you can register it and make it official.
- A “Doing Business As” (DBA) registration shows that the name you’re using for your business is not your own name or the company’s legal name.
- A trademark gives your business name stronger, nationwide protection and stops other businesses from using the same name.
These two terms are both used when you share your business name with the public, but they don’t offer the same level of protection. A DBA doesn’t protect your name at all; it’s simply a name you use for your business.
File Protections for Logos and Slogans
Besides protecting your business name, trademarks can also protect the things that make your business easy to recognize. You can trademark your slogan, logo, catchphrases, and any other names or symbols connected to your business.
The U.S. Patent and Trademark Office is the agency that handles trademark applications nationwide. Trademarking your business name usually costs around $300, but the exact price can vary by state.
Secure the Appropriate Permits and Licenses
After you get your DBA and register your business, a business formation attorney can help you get the licenses and permits required to operate. The ones you need can vary a lot based on where your business is located, whether you work in more than one state, whether you work with the federal government, or whether your industry has strict federal rules.
The Small Business Administration provides helpful contacts for getting federal permits for certain industries, along with a database where you can look up permit rules for your state. If you’re unsure about the laws where you live, a professional can help you understand what your business needs.
Get Your Tax-Related and Financial Legal Requirements Sorted
If you plan to give out stock in your company, decide how and when people will earn their shares. You also need to follow tax laws by choosing the right type of employer status. Taking care of these steps will help you manage your money properly and get ready for tax time.
Open a Banking Account for Your Business
Keep your business money separate from your personal money. This helps you stay organized and also reduces your personal risk if the IRS audits your business. To open a business bank account, you’ll need an EIN and paperwork that shows you own the business.
Obtain an Employer Identification Number
At first, you might decide to run your business without any employees. If, however, you do decide to hire people later on, you will need to be able to pay them legally. To do so, you must get an Employer Identification Number, which tells the IRS who your business is. Some states also require a separate state tax ID number, so you may need that too.
Even if you never hire any workers, you still might want to apply for an EIN. These function as a Social Security number for your business, which means you don’t need to use your personal SSN on formal paperwork. This basic step can help keep your personal information more private and protect you from identity theft.
Determine a Vesting Schedule
If your small business is a corporation that hands out stock, you can protect the value of that stock by setting up a vesting schedule. A vesting schedule decides:
- How much of their stock investors are allowed to sell
- When investors are allowed to start selling their shares
This process protects your investors by making sure that ownership stays with people who are still involved in the business. Many investors won’t agree to invest unless a vesting schedule is in place, so don’t skip this important step.
Carson Legal Strategies
Starting a business takes planning, but taking care of these legal steps now can save you problems later. If you need help understanding any part of the process, we’re here for you.
Call Carson Legal Strategies at (301) 818-9559 or fill out our online contact form to get clear, actionable guidance for your new business from a trusted business formation attorney.
