If you’ve dreamt of starting your own business, you’re not alone. Many entrepreneurs are eager to see their vision come to life and make a mark in the business world. However, before you dive into this exciting journey, it’s crucial to understand the legal steps involved in setting up your business. From choosing the right legal structure to obtaining the necessary permits and licenses, attorney Jeremy Eveland has got you covered. In this comprehensive guide, we’ll walk you through the essential legal aspects of starting a business, ensuring that you have all the knowledge you need to navigate this complex process successfully. So, grab a notepad and let’s get started on your entrepreneurial journey!
Choosing a Business Structure
Starting a business is an exciting venture, but before you dive headfirst into the world of entrepreneurship, it’s important to carefully consider the structure of your business. Choosing the right business structure can have significant legal and financial implications, so it’s crucial to understand the options available to you.
A sole proprietorship is the simplest and most common form of business ownership. As a sole proprietor, you are the sole owner of your business and are personally liable for its debts and obligations. This structure is ideal for small businesses that are owned and operated by a single individual.
If you’re starting a business with one or more individuals, a partnership might be the right choice for you. In a partnership, two or more people share ownership of the business, and each partner is personally liable for the business’s debts. It’s important to note that there are different types of partnerships, including general partnerships and limited partnerships, each with its own set of rules and regulations.
Limited Liability Company (LLC)
A limited liability company, or LLC, offers the benefits of both a partnership and a corporation. It provides personal liability protection for its owners, known as members, while also allowing for flexibility in management and tax advantages. Forming an LLC involves filing the necessary documents with the state and complying with the state’s regulations.
A corporation is a legal entity that is separate from its owners. This means that the corporation can enter into contracts, incur debts, and engage in legal proceedings. The owners of a corporation are shareholders, and their liability is limited to the amount they have invested in the company. Forming a corporation requires filing articles of incorporation with the state and adhering to certain corporate formalities.
A professional corporation is a specialized type of corporation that is typically formed by professionals, such as doctors, lawyers, or accountants. This structure allows these professionals to practice their respective professions while still enjoying the benefits of limited liability. However, it’s important to note that not all states allow for the formation of professional corporations, so it’s essential to check the regulations in your state.
Registering Your Business Name
Once you’ve chosen a business structure, the next step is to register your business name. registering your business name is an important legal requirement that helps prevent confusion and ensures that your business operates under a unique and distinguishable name.
Check Name Availability
Before you can register your business name, it’s essential to check its availability. You don’t want to choose a name that is already in use by another business, as this can lead to legal issues down the line. Conduct a thorough search of state and federal databases, as well as online directories, to ensure that your desired business name is available.
File a Fictitious Business Name Statement
If you choose to operate your business under a name that differs from your legal name, you will need to file a fictitious business name statement, also known as a “doing business as” (DBA) statement. This statement notifies the public that you are conducting business under a name other than your own. The requirements for filing a DBA vary by state, so be sure to research the specific regulations in your area.
Register a Trademark
To protect your business name and brand, consider registering a trademark. A trademark provides legal protection for your business’s name, logo, or other identifying marks. Registering a trademark gives you the exclusive right to use those marks and can help prevent others from using a similar name or logo in connection with a similar product or service.
Obtaining the Necessary Permits and Licenses
Operating a business typically requires obtaining various permits and licenses to ensure compliance with local, state, and federal regulations. Failure to obtain the necessary permits and licenses can result in fines, penalties, or even the closure of your business. Here are the steps to follow when obtaining the necessary permits and licenses:
Determine Required Permits and Licenses
The permits and licenses needed will depend on the nature of your business and its location. Research the specific requirements for your industry and location to determine the permits and licenses you need to obtain. Common examples include business licenses, health permits, sales tax permits, and professional licenses.
Apply for Federal Licenses and Permits
Some businesses may require federal licenses or permits to operate legally. Examples of such businesses include those involved in broadcasting, aviation, firearms, and alcohol. Research the federal agencies that regulate your industry and follow their application procedures to obtain the necessary licenses or permits.
Apply for State and Local Licenses and Permits
In addition to federal permits and licenses, most businesses need to acquire state and local permits and licenses. These requirements vary widely depending on your location and the type of business you’re operating. Contact your state or local government offices to determine the specific licenses and permits you need and follow their application processes.
Applying for an Employer Identification Number (EIN)
An Employer Identification Number (EIN) is a unique nine-digit number assigned by the Internal Revenue Service (IRS) to businesses for tax and identification purposes. Obtaining an EIN is mandatory for most businesses, even if you don’t have employees. Here’s what you need to know about applying for an EIN:
Understand the Importance of an EIN
An EIN is used to identify your business for tax purposes. It’s necessary for filing tax returns, opening business bank accounts, hiring employees, and applying for certain permits or licenses. As such, obtaining an EIN is one of the first steps you should take after choosing a business structure.
Determine Eligibility for an EIN
Most businesses are eligible for an EIN. However, there are a few exceptions. If you’re a sole proprietor without employees, you have the option of using your Social Security number instead of an EIN. Additionally, certain types of entities, such as church-controlled organizations or government entities, may not need an EIN. Consult the IRS website or a tax professional to determine your eligibility.
Apply for an EIN
Applying for an EIN is a straightforward process. You can apply online through the IRS website, by mail, or by fax. The application will require basic information about your business, such as its legal name, address, and the name and Social Security number of the responsible party. Once submitted, you will receive your EIN immediately, and it will be valid indefinitely.
Setting Up Tax Accounts
When starting a business, it’s crucial to understand your tax obligations and ensure that you have the appropriate tax accounts set up. Failure to comply with your tax obligations can result in fines, penalties, or legal consequences. Here are the steps to follow when setting up your tax accounts:
Understand Your Tax Obligations
Different types of businesses have different tax obligations. Research the specific tax responsibilities for your business structure and industry to ensure that you understand what is required of you. The most common types of taxes for businesses include income tax, employment tax, sales tax, and excise tax.
Register for Federal Taxes
When it comes to federal taxes, most businesses need to register with the IRS. In addition to obtaining an EIN, this may involve filing additional forms, such as Form 8832 for multi-member LLCs or Form 2553 for S corporations. Visit the IRS website or consult a tax professional to determine your specific federal tax registration requirements.
Register for State and Local Taxes
Just as you need to register for federal taxes, you will also need to register for state and local taxes. This includes sales tax, use tax, and other taxes specific to your location. Contact your state’s tax authority and local government offices to determine your registration requirements and deadlines.
Choosing and Protecting Your Brand
Your brand is an essential asset of your business that sets you apart from your competition. Choosing the right brand name and protecting it is crucial for long-term success. Here are the steps to consider when choosing and protecting your brand:
A trademark is a word, phrase, symbol, or design that identifies and distinguishes the source of goods or services. Registering a trademark grants you exclusive rights to use that mark in connection with the goods or services specified in the registration. Before choosing a brand name, conduct a thorough trademark search to ensure it’s available and doesn’t infringe on existing trademarks.
Perform a Trademark Search
A trademark search helps you determine if a similar mark is already in use or registered. This search includes checking federal and state trademark databases, domain names, and online directories. You may also want to conduct a common law search to ensure that you won’t infringe on any unregistered trademarks. Consider consulting an intellectual property attorney or a trademark search professional for a comprehensive search.
File a Trademark Application
Once you’ve ensured that your desired brand name is available, it’s essential to file a trademark application. This application should include a description of the mark, the specific goods or services associated with the mark, and evidence of use if applicable. Filing a trademark application with the United States Patent and Trademark Office (USPTO) will provide you with federal protection for your brand.
Understanding Employment Laws
As a business owner, it’s important to have a basic understanding of employment laws to ensure that you comply with the legal obligations related to hiring and managing employees. Failure to comply with employment laws can result in costly lawsuits and legal consequences. Here are some key areas to focus on:
Classification of Workers
Understanding the classification of workers is crucial to comply with employment laws. Workers can be classified as employees or independent contractors, and each classification has different legal implications. It’s important to correctly classify your workers to ensure compliance with wage and hour laws, tax requirements, and benefit obligations.
Complying with Minimum Wage Laws
Minimum wage laws set the lowest hourly wage that employers can legally pay their workers. These laws vary by state and sometimes by industry. Research the minimum wage requirements in your jurisdiction to ensure that you’re paying your employees the legal minimum. Additionally, be aware of any exemptions or exceptions that may apply to your business.
Understanding Anti-Discrimination Laws
Anti-discrimination laws prohibit employers from discriminating against employees or job applicants based on protected characteristics such as race, sex, age, religion, disability, or national origin. Familiarize yourself with these laws and ensure that your employment practices and policies are in compliance. Implement equal opportunity policies and provide training to employees to prevent discrimination in the workplace.
Creating Contracts and Agreements
Contracts and agreements are foundational to business operations. Having well-drafted contracts in place protects your business interests, establishes clear expectations, and helps prevent disputes. Here’s what you need to know about creating contracts and agreements:
Essential Contract Components
Well-drafted contracts should include essential components such as the names and addresses of the parties involved, a clear description of the goods or services being provided, payment terms, duration of the agreement, termination clauses, and dispute resolution provisions. Consider consulting an attorney to ensure that your contracts cover all necessary provisions.
Drafting and Reviewing Contracts
When drafting or reviewing contracts, it’s crucial to pay attention to the specific terms, obligations, and potential risks involved. Clearly communicate the rights and responsibilities of each party, and ensure that the contract is legally enforceable. If you’re unsure about any aspect of a contract, seek legal advice to avoid potential pitfalls.
In the event of a breach of contract, it’s important to know how to enforce your rights. Review the dispute resolution provisions in your contracts and determine the appropriate course of action. This may involve negotiations, mediation, arbitration, or litigation. Consult with an attorney to understand the best approach for your specific situation.
Managing Intellectual Property
Intellectual property (IP) refers to creations of the mind, such as inventions, trademarks, copyrights, and trade secrets. Protecting your IP is crucial to safeguarding your business’s unique ideas and assets. Here’s what you need to know about managing intellectual property:
Copyright protection applies to original works of authorship, such as literary, artistic, and musical works. While copyright protection exists automatically upon creation of a work, registering your copyright with the U.S. Copyright Office provides additional legal benefits. Consider registering your original works to protect them from unauthorized use.
Patent protection is essential if you have invented a new and useful process, machine, or composition of matter. A patent grants exclusive rights to the inventor, preventing others from making, using, or selling the invention without permission. To obtain a patent, you must file a patent application with the U.S. Patent and Trademark Office (USPTO) and meet the specific requirements.
Trade Secret Protection
Trade secrets are valuable confidential information that gives your business a competitive advantage. Protecting trade secrets involves implementing measures, such as non-disclosure agreements (NDAs) and restricting access to sensitive information. Educate your employees and contractors about the importance of maintaining confidentiality to safeguard your trade secrets.
Complying with Privacy Laws
In the digital age, privacy is a growing concern for businesses and consumers alike. Complying with privacy laws is essential to protect your customers’ personal information and maintain their trust. Here are some key considerations for privacy compliance:
Understanding Data Privacy Regulations
Data privacy regulations, such as the European Union’s General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA), impose specific obligations on businesses that collect, use, and store personal information. Depending on your business’s activities and the jurisdictions you operate in, you may need to implement privacy policies and obtain explicit consent from individuals.
Handling Customer Information
When collecting and storing customer information, it’s crucial to implement appropriate security measures to protect against data breaches or unauthorized access. Regularly review your data collection and storage practices to ensure compliance with privacy laws and industry standards. Train your employees on the importance of safeguarding customer information and have processes in place to handle data breach incidents if they occur.
Starting a business is an exciting journey, but it’s essential to navigate the legal steps involved to ensure a strong foundation for success. By choosing the right business structure, registering your business name, obtaining necessary permits and licenses, obtaining an EIN, setting up tax accounts, protecting your brand, understanding employment laws, creating contracts and agreements, managing intellectual property, and complying with privacy laws, you can position your business for growth and navigate potential legal challenges with confidence. Remember, consulting with an experienced business attorney can provide invaluable guidance throughout this process and help you make informed decisions for your business.