So you have a great new idea or a way to improve on an existing one, but what now? This guider explains 10 critical legal areas to consider when launching any new business. It's specifically geared towards IL, MN and WI businesses and entrepreneurs but can be useful to all.
1) Consider how much protection from personal liability you will need. What are your business risks?
It could probably go without saying that when starting a new business it is imperative to consider the risks that it will face. Determining how likely you are to face losses will help you in making your determination on which entity is appropriate to your business. For example, a sole proprietorship provides no protection to the individual owner who remains on the hook for all potential liabilities and losses. This means that an individual doing business as a sole practitioner may be risking his savings, his credit and his home. Conversely, a C corporation will shield an individual owner from liabilities of the business. The trade-off with a C Corporation is added complexity in formation, operation and additional formalities that must be followed.
2) Research the different types of business organizations.
The types of business organizations available depend on the state in which you will be forming your business; however, for the most part, the same basic types of structures are available in most states. Sole proprietorships, partnerships, limited liability hybrid entities (limited liability partnerships or limited liability corporations), S Corporations and C Corporations are all available to explore as possible structures for your business. Each has its benefits and drawbacks so it is important to take some time to explore the features that each offers and the formalities required for their continued operation.
3) Determine how your business will be taxed.
As they say, only two things in life are certain: death and taxes. Starting your own business means that you’ll now have a lot more to consider than filing a 1040 each spring. Your choice of business entity will have long lasting implications for how and when you will be required to pay taxes. You’ll want to research the various reporting requirements for each entity to determine whether you’re willing to face a complex taxation scheme if it potentially means savings down the road.
4) Determine a legal structure for your business.
Not only does each business entity have different benefits and disadvantages when it comes to taxes, but they each have various levels of formality, varying filing requirements and other considerations. Before selecting an entity for your business, you should take some time to familiarize yourself with the various characteristics of each.
5) Determine what your business will be called and research the name.
Once you’ve determined which type of business entity to use you should do some research on the name you would to use for your new business. In the internet age it’s easier than ever to find out if someone is already using the name, whether a domain name is available and whether protection is available if you do move forward using your chosen name. Unfortunately, there is no one-stop shop to determine the viability of using a name, but with a few resources and a little time you should be able to develop a sense of confidence that your chosen business name is not going to conflict with another business. Make sure to check name availability at the county and state levels as well as at a national level by researching the USPTO database. It's also important to search domain name availability so you're sure that you'll have the ability to effectively market your new business online.
6) Register business name.
Once you’ve done your due diligence and determined that it’s safe to use your chosen name it’s time to register your name. Many times, this is done concurrently with filing any organizational paperwork. In most states, if you are forming a corporation, LLC or limited partnership, your name will be automatically registered when you file articles of incorporation, articles or organization or a limited partnership statement. However, if you have decided to form a sole proprietorship or partnership that will be doing business under a fictitious name, while there are no required filings to organize the business, you’ll want to register your fictitious business name.
7) Prepare organizational paperwork- what is required?
Various filings are required depending on the business entity you have selected. by visiting the Secretary of State's website (or that of the Deparment of Financial Institutions, Department of Corporations, etc. depending on the state) you'll be able to determine the required filings for each entity as well as where to file and filing fees. However, this is one primary spot where you may want to enlist the services of an experiences business attorney in your state to ensure you don't miss any critical steps, filings or deadlines.
8) Obtain licenses and permits.
The licenses and permits you will need to operate your business vary widely depending on your location and type of business. However, there are a few items that will be necessary for nearly all new businesses. Federal EIN EIN stands for Federal Employment Identification Number. Your c EIN will be used as an identifier on federal tax forms. and when reporting employee income to the government. State seller's permit or general business license It may be necessary to obtain a seller’s or resale permit. A seller’s permit is typically required for any business selling tangible goods or taxable services, unless they are specifically exempted by statute. Any specialized state licenses Many areas of business require additional licenses in order to operate such as car dealerships or real estate agents. Local registrations and permits Some businesses may also need to register with the city or county of business.
9) Obtain Insurance.
It should go without saying, but starting a business will bring with it inherent risks and inevitable unhappy customers. Business insurance can protect you from loss due to natural disasters or lawsuits. There are various types of insurance available to you and your business such as property and casualty insurance to protect your physical business assets (buildings, vehicles, inventory, etc.) or liability insurance which can shield you against claims for negligence. Additional types of insurance available to businesses and business owners are: • Commercial auto insurance • Product liability insurance • Business interruption insurance • Worker’s compensation insurance • Life and disability insurance You should speak with an insurance professional about which types of insurance are appropriate for your business.
10) Learn about taxes.
While the complexity of your business’s tax obligations will be dictated largely by its size, your choice of business entity will also play a large roll. Expenses incurred in areas such as advertising, benefits, depreciation, supplies and materials, and office expenses can reduce the total amount of liability your business may have. A word of caution though: Tax laws are incredibly complex and the penalties for abuse or misuse can be substantial. Given the risks involved, the best bet is to hire a good lawyer and accountant to walk you through the maze of code sections and regulations. This is one area where the money you spend to get some profession help will be very well spent.