Legal Requirements To Start A Business: 5 Tips For Startups

Legal Requirements To Start A Business: 5 Tips For Startups

Congratulations on your new business venture! Without putting too much of a damper on the excitement of finally seeing a dream come to fruition, this might be an excellent time to take a moment and ensure that your business avoids the legal pitfalls that can stop it in its tracks.

Hiring a business law attorney may not be at the top of your list of things to do. But the advice and guidance of a lawyer can get you in compliance with the most common legal requirements for businesses. Before choosing a business location, drafting a business plan, or following any of the other tips for starting a business, here are five tips every startup needs in order to satisfy legal requirements.

Tip #1: Choose the right business structure

Protecting your personal assets against claims by business creditors or determining how taxes are paid on business income is controlled by the structure chosen for the business when it first forms. Some of the common business structures include the following:

  • Sole proprietorship: This is perhaps the easiest to form. But it offers no protection for you, as the owner, against claims for debts or other obligations of the business. You are the business, so its profits and losses are on your personal tax return.
  • Corporation: A corporation is legally a separate entity and apart from its owner. Remember, corporations can sue and be sued in their own name. If properly set up, a corporate structure shields you and what you own against business claims and obligations. As a general rule, corporations file their own returns separate from those of their owners.
  • Limited Liability Company: The fact that it operates separate and apart from its ownership makes it similar to a corporation in the protection it provides to its owners against personal liability. An LLC may offer tax advantages over other types of business structures.
  • Partnerships: Two or more people may agree to engage in business as a partnership. Partners share profits and losses according to a partnership agreement. They also share liability.

It is possible to start as one business entity, such as a sole proprietorship or partnership, and change to a different one later on.

Tip #2: File a business certificate

Businesses that operate under a business or fictitious name other than that of the owner must file a certificate with the state or county government. The purpose of the certificate is to let the public know the true identity of the owners behind the name. The failure to comply with the law could subject you or the business to penalties.

Tip #3: Obtain a tax identification number

An Employer Identification Number or EIN issued by the IRS is a must-have for all businesses. An EIN serves the same purpose for businesses that a Social Security number serves for individuals. It gives the IRS and state tax authorities a means of identifying taxpayers.

Depending upon where you do business, you may need to apply to the state government for a permit and identification number to collect sales tax. If your business sells products or services that are subject to state sales tax, it must collect it from buyers and transmit it to the state. Your business law attorney may recommend an accountant to help set up the financial recordkeeping. This is crucial as your business needs to comply with state and federal income and payroll tax laws.

Tip #4: Apply for business licenses and permits

Your business may need licenses or permits from federal, state, or local agencies in order to legally operate. For example, if your business activities involve the movement of plants across state lines, it may need a federal permit to avoid fines and other penalties. State and local governments also may require that your business obtain licenses or permits to legally operate without risking fines and being forced to curtail business operations.

Tip #5: Consult a business attorney

One of the biggest mistakes people make when starting their business is to wait until problems develop before consulting a business attorney. Bringing a lawyer into the startup process at an early stage can prevent legal problems from occurring. Lawyers will help by anticipating and addressing issues in advance.

An attorney's knowledge of the law and experience setting up businesses ensures you start out operating in compliance with legal requirements in your state. A lawyer can help with drafting and reviewing contracts and agreements. While also helping negotiate leases, searching and registering trademarks, and other services. This ensures that not only does your business comply with the law, but can also prevent conflicts and disputes. Especially those that can be financially damaging to a new business.


Author’s Bio:

Steve Howards has been writing legal-centric articles for several years now. He started working with the personal injury attorney law firm Herrig & Vogt in 2019 as the Content Marketing Manager, which has allowed him to expand on his writing in personal injury, family law, and much more. Steve strives to offer the public advice on various laws covering a variety of practices.

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