It is a fun thought to start a business, and it is a dream of many. However, opening up a business takes more than just an idea. It takes business and marketing plans, and there are a number of regulations and laws that need to be followed. If you have been debating starting up your own business, the following may help you navigate through all of the legal aspects involved.
1. What are the different legal structures that I can choose from?
The options for setting up your business legally include sole proprietorships, limited liability companies (LLC), partnerships, and corporations. The type you choose will depend on a number of factors including how many people are involved, tax status, and how much personal liability you want to have.
2. How does a corporation work?
A corporation is a popular structure because, as an owner, you are protected from personal liability. However, there are some downfalls to this set up. There are more costs and legal hoops to go through, and there are procedures to follow, such as recording periodic meetings, issuing stock certificates, and electing directors. Corporations are also gouged tax-wise. There is taxation at the corporate level, and the shareholders’ profits are taxed as well.
3. What is a limited liability company?
This structure falls somewhere between a corporation and a sole proprietorship. The owner is protected personally, but the company is not taxed twice like a corporation is. An LLC also doesn’t have to follow the formalities associated with a corporation.
4. How do I name my business?
You can choose any name for your business, as long as it is not a name that is already registered by another organization. If your business name is different than your own legal name (which is listed on file with the state), then it is known legally as a fictitious business name, and you will need to register it with the county and/or state. Each state has its own registration requirements, so speak with your lawyer if you have any questions about what is required in your state.
5. Do I need to get a business permit or license?
As a business owner you will need to obtain a business license from the county and/or city. Many businesses will also need to apply for an employment identification number (EIN), which can be done through the IRS. Any other permit or license required will depend on the specific industry and location.
6. What tax responsibilities do I need to be aware of?
Besides the tax requirements associated with the different business structures, as discussed earlier, there are some tax-related information that you need to be aware of. When starting a small business, it is very important to understand what is involved so that you don’t get into trouble further down the line. First of all, it is imperative that you keep good records, such as preparing financial statements and tracking all expenses.
You should always keep your personal expenses separate from your business ones, even if you are in a sole proprietorship. You also need to understand sales tax if you are selling products, payroll taxes for employees, and how self-employment tax will affect you.
7. How do I finance my business?
This is a crucial question, as most businesses don’t start making a profit for months to even years. Using personal funds and borrowing from friends and family are good options, although make sure you draw up a clear contract for any loan amount. You may also need to look into business loans from banks, commercial finance companies, and the Small Business Association (SBA).
Consulting with a lawyer is always a good idea when starting a business. This ensures that you are filing all of the correct paperwork and choosing a business organization that is best for your situation.
The content on our website is only meant to provide general information and is not legal advice. We make our best efforts to make sure the information is accurate, but we cannot guarantee it. Do not rely on the content as legal advice. For assistance with legal problems or for a legal inquiry please contact you attorney.