“Risk is the secret to success.”- Tony Robbins
But risking your business legalities would be too much and may cost you more than you could probably imagine.
Aspiring to set up a business is a dream of every entrepreneur. But it is easier said than done. Surviving in the commercial marketplace is a big challenge for startups.
Jumping into this competitive market without proper knowledge of the legal obligation of running a business may shake the basic foundation of the company. You first need to prepare your battlefield for sustainable survival.
The range of small business legal requirements starts from financial regulation, tax obligation, employment laws to licensing, and others. Keep reading to know more about this!
Ensure that you comply with all the legal requirements for your new venture so that you can focus on your business growth. Here’s all you need to know!
What are the legal requirements for starting a small business?
Just a terrific idea may not help you get your small business off the ground. Ensure that you comply with all the legal requirements for your new venture so that you can focus on your business growth. Here is an easy-to-follow guide for your startup so that legal complication does not come on your way to success.
1. Protect your asset
Protecting your asset is something you should consider when you launch your business. It is a big challenge for budding business owners to earn adequate profit to run their business. But even for seasoned business owners, unjust lawsuits can eat up a lot of time and money resulting in a business downturn. For the financial security of your business as well as yours, you must take the necessary legal steps.
Research before you opt for LLC or Corporation. This is a lengthy process and is vital as it decides the legal fate of your business. Hence, take an ample amount of time to research what suits the best of your startup.
LLC or Corporation:
Designing the business structure is the basic step of initiating your startup and it links to the legal obligation of a new business setup. Forming between LLC or Corporation requires enough knowledge about both the structures. Both have their merits and demerits, and therefore, one needs to decide wisely before setting the business structure.
Limited Liability Company as the name implies it protects you from personal liabilities in cases where the damage is incurred by customers. LLC as a business structure protects your assets like a house or vehicle when your business is sued or bankrupt. Moreover, LLC allows you to file your business income in your income tax by paying a self-employment tax. Any allegation of faulty product or inadequate service from the customer’s end cannot put your personal asset at risk if you design your business structure like an LLC.
A corporation is a kind of business structure that provides the greatest level of personal protection from liabilities. This structure makes the company a separate entity from its owner or owners. It is more complicated, and this structure files separate income taxes on their profits.
These are the two basic and important business structures. But different other categories can help form a strong business administration.
2. Register your business
Planning out business strategies, structure, and other stuff will not give results until you register your business. Choose a name depending upon your business services and make sure it is unique, as it would be reflecting your brand. Make sure the name has not been claimed, otherwise you may face legal implications. There are mainly four different ways of naming your business, which have their own merits and demerits.
- A domain name is a naming technique that claims your business web address.
- An entity name is a useful one that protects your business legally at the state level.
- A DBA (Doing Business as) does not offer any legal protection to your startup.
- Next comes, the Trademark that protects business legally on the Federal level.
Do not violate trademarks:
Trademark or copyright issues can turn up to be serious issues if not taken care of initially. For budding entrepreneurs, it must ensure that their business name is not already trademarked. Launching your startup and advertising your products or services with a name that is already being used can create serious legal complications.
3. Don’t forget about Federal Taxes
Once you are done with your business structure and naming, it’s time to get down to business. When you have just landed up in this business field you need to be aware of business taxes, which are vital aspects for business sustainability for small businesses. And obviously, it won’t be as simple as buying and selling goods only. You need to pay a certain amount of tax to your government, and you cannot rule out that. To avoid the IRS knocking on your door, apply for an Employer Identification Number (EIN) online. This would allow the government to distinguish your startup from others while collecting the respective taxes.
Following business plans requires having EIN for your business:
- Tax-deferred pension plan
- Filing employer tax return
- Functioning as a corporation
- Hiring and paying employees
4. Need of a State Tax ID Number
Tax clearance is one of the biggest responsibilities a business owner has. Settling down your tax obligations is a must. Besides federal taxes, you need to keep a check on the state taxes as well and apply for a state tax ID number accordingly. The tax rate varies from state to state. Therefore, you must research efficiently and check the local laws related to employment tax and income.
5. Check if your business needs licensing
Certain businesses need licensing before opening doors. Whether a startup or small business venture licensing is a significant part of the business. Check whether your startup is liable to licensing otherwise you may land up into a sea of legal implications. Specialized domains like medical, legal, transport, etc., requires a specified license to carry out the business smoothly. The US specifies a list of professions that require definite license and permit issues. Research online and take special precautions for licensing requirements. This is something that should not be shrugged off, in order to avoid unwanted expenses and legal problems.
6. Business permits and insurance
Insurances are meant for protection from various unexpected situations, and business insurance is no different. Running a small business may put you into certain situations where you may face a heavy loss. Hence, starting a small business with legal requirements without insurance would be risky. Business insurance helps protect your startup as well as your personal assets. It is a wise decision to purchase business insurance to safeguard your startup from potential risks.
Here are some of the common business insurance options that you can opt for:
Commercial property insurance:
Natural disasters, accidents, or vandalism may damage your business property. In such situations, common property insurance can protect your startup from loss or damage.
General liability insurance:
Not just property damage, a business can run down into financial losses due to several other causes like medical issues, injury, lawsuit settlement, etc. Here comes general liability insurance into the picture that protects your startup from such probable cases.
Product liability insurance:
Customers can claim compensation for faulty products or bad services. In such cases, you can easily save yourself as well as your small business enterprise from bearing a heavy loss if you have product liability insurance.
Insure your workers:
Skimming out any of the above insurance can result in the permanent closure of your business doors. General liability insurance is considered the most important one. Worker’s compensation insurance is offered to those employees who are injured on-job and are unable to pay for themselves. Ruling out this factor won’t help you cut down expenses, rather it may cost dearly. As a beginner, you would not want to start with loss and therefore take necessary precautions so that you can focus more on your business growth.
7. Open a bank account for your business
Finance is an imperative part of the business from a legal perspective. Creating a business account is not just vital, but also serves your needs conveniently.
Moreover, it is essential to keep personal and business income separately.
You can simply open a business account for your startup by providing the below data:
- Business license
- Ownership agreement document
- Formation document of business
8. Consult professional and hire a good layer
When you are all set with your legal obligations and arrangements, you must ensure that you hire an efficient law professional for legal advice.
While you deal with lawsuits it is always recommendable to rely on solid legal expertise.
Hence to ensure that you have covered all your legal obligations for your startup, hire or consult a professional. Consulting a lawyer and accountant can help you coordinate your finances and legal issues smoothly.
Can a business be started without registering it?
Well, if you want a separate business name then you need to register it. Before registering make sure it is not in use. On the other hand, you can also conduct your business under your name without registering it.
Whether appointing the right legal experts or arranging legal papers for your startup, you must safeguard your small business from unexpected situations and legal harassment. The easy guide mentioned in this article will help you cover all the legal aspects of a small business or a startup. No more worries! Start on with your dream project now.