10 Essential Legal Steps in Starting a Business
This is a brief overview of the 10 essential things you need to do when starting a business in the United States. This is not an exhaustive list. Depending on your particular situation, there may be other things you need to -- or should -- do.
1. Select a structure for the businessThe four basic kinds of business structure are:
(1) Sole proprietor
(4) Limited liability company.
Various other kinds of organizations exist in different jurisdictions, but these are the basic choices.
There are advantages and disadvantages to each, particularly in terms of personal liability, taxes, ability to raise capital, management, and transferability of interests.
2. Choose a business nameWhen choosing a business name, aim for something original. Marking products or services using a brand name that is confusingly similar to an existing trade mark or trade name could get you into trouble for infringement and/or unfair competition.
Once you've chosen a name, use the correct designation:
(1) dba = "doing business as." Use this to indicate a fictitious business name;
(2) GP = general partnership;
(3) LP or Ltd. = limited partnership;
(4) LLP = limited liability partnership;
(5) Inc. or Corp. = corporation;
(6) LLC = limited liability company
3. Prepare your organizational documentsThese are called different things, depending on the kind of entity and the jurisdiction. Typical organizational documents are:
(1) Corporation: articles of incorporation;
(2) Limited liability company: articles of organization;
(3) Partnership: partnership agreement.
Because a sole proprietor is simply an individual operating a business personally without establishing a legal entity, there is no organizational document for a sole proprietorship. A sole proprietor may have a number of contracts with other people and businesses, however.
Organizational documents should spell out the rights, obligations, and procedures that apply to the operation and management of the organization, and people's interests in it.
Some issues to include in them are:
(c) Capital contributions;
(e) Dissolution, removal, succession;
(f) Dispute resolution.
This is just a representative sampling; it is not an exhaustive list. If intellectual property is to be contributed to and/or used by the organization, you will want to include very specific provisions about it.
4. Obtain an Employer Identification Number (EIN)You will need one for any entity that is taxed at the entity level, such as a corporation, or has employees. Getting one is strongly recommended even for a 1-person LLC, so you can open a bank account and engage in a various of other kinds of business transactions.
You might need both a federal and a state EIN, depending on your jurisdiction and how your business is organized.
5. Register your business with the stateThis is usually done through a state's secretary of state office.
6. Register with other states and offices, as requiredSome states may require you to register as a foreign business if you conduct business in the state, even if it is registered in a different state.
It may also be necessary to register with more than one department within the same state. For example, it may sometimes be necessary to register with both a secretary of state and a department of revenue (for sales tax purposes.) This varies from state to state.
7. Register trade names and trademarks, if applicableIn most jurisdictions, you will need to register your business with the state, usually the Secretary of State's office. In addition, if you want to operate under a fictitious name (as distinguished from your actual name or the actual name of the company), you may have to register and publish a fictitious business name statement.
Trademarks are product and service brand identifiers; they are not the same thing as business names. Registering a business name is not the same as trademark registration. If you have a trademark, it can be a good idea to register it, too.
8. Secure all needed licenses and permitsThese vary by jurisdiction and the kind of business.
9. Comply with zoning and land use regulationsThese may appear in zoning ordinances, building codes, homeowner or condominium association rules (if it's a home-based business), leases, and applicable statutes and regulations. For example, if you plan to sell food products, you will need to comply with all application food codes, health codes, statutes and regulations applicable to the preparation and sale of food and food products. Pay attention to signage, parking, home-business, advertising and solicitation rules.
10. Establish a bank account and maintain financial recordsOpen a business account. Use it exclusively for business purposes. Never use it for personal expenses. Keep a separate set of books and records for your business and personal accounts, income, expenses, assets, and liabilities.