How to Ensure You’re on the Right Side of the Law
Starting a business is a big undertaking, and it comes with many legal considerations. To ensure you’re on the right side of the law and protect your business, knowing what legal steps to take when setting up your business is essential. The fines for overlooking legal business registration or permits can be massive and vary from state to state. The last thing you want is for your new venture to fail before it starts. So let’s look at what you must do before trading.
Choosing the Right Business Structure
When you’re starting a business, it’s essential to choose the proper business structure. This will determine how you’re taxed, your liability, and the paperwork you must do. The most common business structures are sole proprietorships, partnerships, limited liability companies (LLCs), and corporations.
A sole proprietorship is the simplest business structure, and it’s suitable for small businesses with one owner. The owner is personally liable for the business’s debts and liabilities, and the company is not separate from the owner for tax purposes.
A partnership is another relatively simple business structure, and it’s suitable for businesses with two or more owners. The partners are personally liable for the business’s debts and liabilities, and the company is not separate from the owners for tax purposes.
A limited liability company (LLC) is a business structure that combines the limited liability of a corporation with the pass-through taxation of a sole proprietorship or partnership. The owners of the LLC are not personally liable for the business’s debts and liabilities, and the business is treated as a separate entity for tax purposes.
A corporation is a business structure offering the greatest personal liability protection. The owners of a corporation are not personally liable for the business’s debts and liabilities, and the business is treated as a separate entity for tax purposes.
Registering Your Business with the State
Once you’ve chosen the proper business structure, the next step is to register your business with the state. This process is known as business formation, a legal requirement in most states.
The process of business formation varies from state to state. Generally, you’ll need to file the appropriate business formation documents with the state, and you may need to pay a filing fee. Depending on your chosen business structure, you may also need to register with other government agencies, such as the Department of Revenue or the Secretary of State.
Obtaining an Employer Identification Number (EIN)
After registering your business with the state, the next step is to obtain an employer identification number (EIN). An EIN is a unique number the Internal Revenue Service (IRS) assigns to a company for tax purposes.
You must complete Form SS-4, Application for Employer Identification Number, to obtain an EIN. This form is available on the IRS website and is free to complete. Once you’ve completed the form, you must submit it to the IRS. You can do this online, by mail, or by fax. Or use a Service for filing a federal tax ID with the IRS.
Establishing Business Licenses and Permits
In addition to registering your business with the state and obtaining an EIN, you must get the necessary business licenses and permits. This legal requirement in most states allows you to operate your business legally.
The requirements for obtaining business licenses and permits vary from state to state, so you must check with your state’s licensing authority for more information. Generally, you’ll need to apply for a business license or permit, pay applicable fees, and submit any necessary documentation.
Following this legal checklist will help ensure you’ve taken all the steps to be legally prepared to succeed. By preparing the necessary legal documents and registering your business with the state, you’ll be able to launch your business confidently, knowing that you’ve done everything you can to protect your business and ensure its success.