Legal requirements for starting a small business: Around 550,000 people become entrepreneurs each month.
In the excitement of generating new ideas, being your own boss, and growing your profits, it is easy to push logistics aside. Many folks are so busy dreaming about their flourishing futures that they neglect to prepare for the worst.
If you don’t have the proper documents in place, you may find yourself in piles of trouble. Disgruntled employees, lawsuits, and even business failure could all result from a lack of planning.
8 Crucial legal requirements for starting a small business
Here are 8 crucial legal requirements for starting a small business which you should follow to run a hassle-free business.
1. Register Your Business Name
Registering the business name is the first requirement for legal requirements for starting a small business. Registering your business name lets your state or local government know the moniker you will be doing business under. It is your “Doing Business As” (DBA) or “Fictional Business Name.”
Registering your name does not provide trademark protection. It does, however, allow you to use your name for branding.
Before choosing a business name, check your state and federal name registries to see if any businesses have similar names. You don’t want to choose the same name as a company that is close by who is offering comparable services.
If you plan on using a website to grow your business, check and see if anyone is using your desired domain name. You may have to alter it by a character or two to avoid being a duplicate.
The only time you will not need to register your business name is if you are the sole proprietor. In these cases, however, it still provides you with extra legal protection.
If you are starting a corporation, you will need to file articles of incorporation. You can do this with your state’s business filing agency.
You will be charged a filing fee when you submit your paperwork. Once you have been approved, your state will issue you a certificate of formation.
Your corporation will likely be required by your state to have corporate bylaws.
Incorporation provides asset protection. It also limits your personal liability when it comes to debts and legal issues.
Incorporating prevents competitors from using your brand name. It can also add credibility to your brand when you are working with suppliers or investors.
An “Inc” proves serious official ownership. And your brand will legally be allowed to continue, even if you decide you no longer wish to be a part of the company.
3. Get Trademarked
If you are hoping to operate nationally or provide services online, a trademark will protect your brand in all states. Trademarks are designed to distinguish the brands and services of one provider from all others. And it grants you the right to file an infringement lawsuit if someone attempts to steal your brand.
You will need to file for a trademark with the US Patent Office. You can also register any inventions there.
In addition, any written or artistic content, such as songs or books, should be copyrighted with the US Copyright Office. This will prevent anyone from stealing your intellectual property.
4. Get An Employee Identification Number
An Employee Identification Number (EIN) is required in order to open bank accounts, file taxes, and apply for business licenses. You can obtain one from the IRS.
You are not required to have an EIN if you are the sole proprietor.
Be certain that any bank accounts you open under your business name are kept separate from your personal accounts. If you mingle them, you could become personally responsible for debts or lawsuits that are filed against your business.
Tax requirements vary from state to state. It is advisable to check with your tax consultant on what are required.
Some states necessitate self-employment, income, sales, or state unemployment taxes. A failure to pay could mean the end of your business, so it is important to follow through.
5. Obtain Proper Permits and Licenses
Research all of the permits and licenses required by your state for your type of business. Federal permits may be required as well. Examples include a fire department permit, a health department permit, and a state sales tax license.
6. Employee Contracts
It is important to supply written contracts to employees so that everyone understands their rights and responsibilities.
You will need to comply with state and local laws regarding your duties toward your employees. They should be paid at least minimum wage, provided with a safe workspace, and treated fairly.
Unlike full-time employees, independent contractors pay their own taxes, get their own insurance, and are free to work for others. If you are using independent contractors, be sure that you state in their contracts that they are not employees.
7. Get Insurance
Depending upon your business, you may be required to have auto insurance or workman’s comp. Some of these are advisable, and others are required. It is important to anticipate any accidents that could cost your company money, and prepare for them just in case.
8. Keep Thorough Records
Keep detailed records of any corporate meetings, payroll documentation, financial statements, and injury logs. You will be able to point to them as evidence if any legal action is ever taken against your company. Today, many auto-recording programs can help.
Authorities must have a warrant before requesting your documents. Read more here about your legal rights in these cases.
The Legal Requirements for Starting a Small Business
The legal requirements for starting a small business are many. Be certain to comply with your federal and state laws before embarking on a new enterprise.
For more information on best business practices, read our blog today.