by LawInc Staff
November 18, 2023
Launching a new business involves many crucial legal and compliance steps. Overlooking important requirements can lead to fines, lawsuits, and failure down the road.
This guide covers the top 10 legal steps entrepreneurs should take when starting a business.
1. Choose a Business Structure
- Defines Ownership: Clarifies ownership percentages, control, and profit/loss distribution.
- Impacts Taxes & Liabilities: Affects personal tax implications, paperwork, and legal liability exposure.
- Long-term Flexibility: Consider future plans for growth, investors, and exit strategies.
2. Register Business Name & Domain
- Check Name Availability: Search state and federal databases to ensure your desired business name is available for registration.
- File with State: Formally register your business name by filing formation documents with your state.
- Secure Domain: Purchase available domain name that matches your business name and brand.
3. Obtain Business Licenses & Permits
- State & Local Requirements: Determine licenses and permits required for your business activities and location.
- Industry-Specific Licenses: Obtain any special licensing for regulated industries like financial services, healthcare, etc.
- Renewals & Updates: Keep licenses current through renewal processes; update if business activities change.
4. File for EIN from IRS
- Obtain EIN from IRS: Required for hiring employees, opening business bank accounts, and tax filing.
- Submit SS-4 Application: Apply easily online or by fax, mail, or phone. Instant online approval.
- Use EIN Consistently: Use your EIN on all tax documents, bank accounts, and other formal paperwork.
5. Open Business Bank Account
- Separate Account: Maintain finances independently from personal funds.
- Shop Providers: Compare account features and fees across banks.
- Finance Management: Utilize tools like payroll, cards, online banking, and accounting integration.
6. Set up Accounting & Bookkeeping
- Choose Method: Select accounting software or work with a bookkeeping firm.
- Set up System: Establish processes for tracking income, expenses, taxes, payroll, etc.
- Link to Banking: Connect accounting system to business bank accounts.
7. Obtain Necessary Insurance
- General Liability: Covers bodily injury, property damage, etc. caused by your business.
- Professional Liability: Protects against claims of negligence/malpractice.
- Property Insurance: Covers damage to business property and assets.
8. Understand Employment Regulations
- Federal Requirements: Adhere to regulations like FLSA, FMLA, ADA, Title VII, OSHA, etc.
- State & Local Laws: Check state/city level employment rules covering hiring practices, benefits, leave, etc.
- HR Policies & Handbooks: Have detailed policies on compensation, performance, conduct, safety, severance, etc.
9. Protect Intellectual Property
- Trademarks: Register names/logos federally and in relevant states.
- Copyrights: Register creative works like written content, artwork, videos, etc.
- Patents: Patent products, inventions, or unique processes/formulas.
10. Create Foundational Documents
- Operating Agreement: Defines structure, roles, voting, distribution, ownership transfers, etc. (for LLCs).
- Bylaws: Outlines company operations, leadership roles, voting rules, etc. (for Corporations). Corporation buy-sell agreements cover departures, disputes, sale of stock, etc.
- Partnership Agreement: Specifies financial/management terms, partner contributions, distributions, buyouts, etc. *Caution since partnerships do not offer liability protection.
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This guide covers business formation steps and regulations generally applicable in the United States. Specific requirements can vary significantly by state and industry, so consult with local professionals to ensure compliance in your jurisdiction.
The information provided in this guide is for informational purposes only and should not be considered legal or professional advice. Business formation laws are complex and depend on individual circumstances. Consult with qualified legal and financial advisors for guidance tailored to your specific business and situation.