What are the requirements to start a business entrepreneurs should know about? Certain requirements, such as understanding state laws concerning this profession, may differ depending on the industry and nature of your small business.
However, most small businesses must meet requirements to start a business that keep them in good standing. Registered businesses must maintain compliance with their state of incorporation, or else they may receive penalty fines or become involuntarily dissolved.
Luckily, this list will act as a guide to ensure your business has all of the necessary assets it needs to grow and maintain operations. Here are some of the most common legal requirements to start a business.
Draft a business plan
This is not a legal requirement for starting a business. However, it helps lay out the groundwork in further understanding your small business ideas and “why” for going into business.
A business plan may be written in a traditional format or it may be a lean document if you do not yet have all of these details in place. This document acts as the foundation for the business. It allows you to set goals for the business and establish timelines to reach each one.
Use a business plan to detail what your company does and more about its offerings and services. Dig into the market analysis to learn more about your customer base and the industry analysis to learn about your competition. Details about the company’s cash flow, as well as its P&L and sales forecast, may be stored in the business plan’s financial projections section. This section will be particularly important to outline details if your business seeks investors or outside funding requests.
Incorporate or form an LLC
One of the legal requirements to start a business is to incorporate under an entity formation. Think about entities like limited liability companies and corporations.
Businesses often start off under the default entity formation of a sole proprietorship. However, this entity does not provide limited liability protection to its owner. Limited liability protection is found under incorporated entity formations. It acts as an added layer of protection, separating personal assets from those of the business.
There are also specialized entity formations, depending on the industry in which you start a business. Some entrepreneurs, especially those that require state licenses to be in business like doctors or lawyers, may incorporate as professional corporations (PCs) or professional limited liability companies (PLLCs). These entities have the same benefits as their standard counterparts but are specific to licensed professionals.
Register the business name
The name of the business acts as its trademark. A clever business name differentiates the company from its competition and allows customers to learn more about the company’s offerings and services.
Should you think about registering a business name? The short answer is yes. Registration at the federal level ensures that no other person or business uses this name. Once you have conducted a name search and discovered that the name is available, file a trademark application to register a business name. Doing this ensures you have exclusive rights to the mark and protects it from any potential trademark infringement.
Outside of business name registration, you may also claim your domain name and consider filing for a DBA. A DBA is a “doing business as” name. Some entrepreneurs may register for a DBA in order to conduct business under a name that is different from their existing one. This allows owners to conduct business transactions and open a business bank account. Keep in mind that DBA registration only protects your business at a state level and is not designed to provide federal legal protection.
Obtain a tax ID
After incorporating or forming an LLC, the IRS will issue your business a nine-digit number. This is an employer identification number (EIN).
An EIN legally identifies the business. It helps ensure it remains in compliance paying federal and payroll taxes. You may also use an EIN for additional purposes, such as opening a business bank account and establishing business credit. An EIN is a requirement if you plan to hire employees, so you must be sure to obtain it prior to making any offers of employment.
Obtain business licenses and permits
The business licenses and/or permits your business obtains will ultimately depend on your industry and the laws of the county, city, and state where you are physically operating.
For example, some small businesses may need to register for a seller’s permit if they sell goods or services online. If you live in a region that charges sales tax and your business sells taxable products and/or services, you will need a sales tax license. A home occupation permit may be obtained for small businesses that operate from home, ensuring their neighborhood is zoned for home business activity.
The full list of business licenses and permits that your company needs will vary, so it is advised that you reach out to the Secretary of State. They may provide further details about license and permit requirements to start a business.
Designate a registered agent
A registered agent (RA) acts as the point of contact between your business and the state. A third-party registered agent may be an individual or an organization. They accept service of process, organize the documents, and deliver it to the business and the owner in a timely and confidential manner.
Remember, however, that registered agents must meet certain requirements. They need to have a physical street address in the state in which you do business and must be a resident in that state. Registered agents must also be available between general business hours, typically Monday through Friday between 8 AM until 5 PM. Some entrepreneurs may appoint themselves to be their own registered agents but must ensure that they also meet these requirements.
Obtain business insurance
Business insurance helps protect your business from any number of scenarios where a significant risk threatens the company.
For example, general liability insurance helps to protect your business in the event of financial loss such as a lawsuit. Product liability insurance, on the other hand, protects the business from claims that a product you made or sold is defective. Explore the various types of business insurance that may be applicable to your business. Obtain the right insurance policy to protect yourself and the company.
Establish a brand presence
This is not one of the legal requirements to start a business. However, it is important to create and establish your brand identity.
Get started with the help of a marketing strategy. If you already drafted a traditional business plan, several aspects of your marketing strategy are likely already well-defined such as market analysis and competitive analysis. Additional important aspects of your brand presence include building a website, registering any logos or designs, and using social media to engage with your audience.
Every business is different and may have a few additional requirements outside of the ones listed above. If you have questions about which entity to incorporate as or business licenses to obtain, speak with a legal or accounting professional. They will provide you with the answers and extra guidance necessary for your entrepreneurial journey.
Deborah Sweeney is the CEO of MyCorporation.com which provides online legal filing services for entrepreneurs and businesses, startup bundles that include corporation and LLC formation, registered agent services, DBAs, and trademark and copyright filing services. You can find MyCorporation on Twitter at @MyCorporation.
Fundbox and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
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