How to Start A Business Legally: 8 Simple Steps to Follow

Starting a business from scratch can be scary if you are not aware of the legal procedures to do it. Business drives around liability and taxes. You ought to know about their working principles to create a proper business plan.

How to Start A Business Legally:  8 Simple Steps to Follow

Starting a business from scratch can be scary if you are not aware of the legal procedures to do it. To launch your promising business idea you need a proper plan from the base.

You must learn the legal requirements to implement it effectively. Business drives around liability and taxes. You ought to know about their working principles.

This post is a step-by-step guide to deal with the legal procedures to start a business from the ground.

1. Choose Business Structure

The first most important legal requirement is to choose the business structure of your company. You can choose between the two options either an LLP or a corporation.

There are advantages and disadvantages to both the business structures, so you can do your research before selecting a business structure for your startup.

  • LLP

An LLP or Limited Liability Partnership is a separate legal entity that is liable to the full extent of its assets but the liability of the partners is limited to their agreed contribution in the LLP.

The LLP continues its existence despite any modifications in partnership. It has the potential to enter into contracts and holding property in its own name.

The LLP is liable to the full extent of its assets but the liability of the partners is limited to their agreed contribution in the LLP.

  • Corporation

A corporation or Corp is a company that is legally an individual entity from its owner or owners. Corporations offer the best level of personal protection from liability out of all business structures.

However, they're more expensive and complicated to form compared to the other ones. Corporations file is indulged to separate income tax on their profits.

2. Business Name Registration

After deciding on a business structure, the next step is to register your business name. Choose a name that reflects your brand and make sure to check its availability.

You can then choose to register your business immediately to avoid anyone claiming it right before registration. There are four different ways to register it, each serving its own purpose:

  • An entity name
  • A trademark
  • A DBA (Doing Business As): It doesn't offer legal protection, but may be required, depending on your location and business structure.
  • A domain name: It claims your business's web address in the marketing platforms.

3. Obtain License and Permits

You have to apply for business licenses and permits at the state government level. And for the specific licenses that you have to depend on the industry you work in and your business location.

The Small Business Administration has a list outlining common business licenses required based on industry, which is a good starting point for your research.

The licenses and permits needed will vary based on where you're located and what your primary business activities are. Research requirements are both at the state and local levels based on where you do business.

4. Business Insurance

Business insurance can protect you from drastic losses when the personal liability protection offered by your specific business structure isn't enough.

It can secure not just your personal assets, but your business assets as well. Whereas some types of insurance are required by law, such as unemployment and disability insurance.

It's also necessary to purchase business insurance to protect your business from other potential risks. Some of the most common business insurance options available includes:

  • General liability insurance: It helps your business to recover from various forms of financial loss, including property damage, medical issues, consumer lawsuit settlements, or judgments.
  • Product liability insurance: If your business sells products, then this insurance will cover for you in some special case that one of your products is defective and injures a customer.
  • Commercial property insurance: It defends your business from loss or damage to company property, as a result of natural disasters, accidents, or vandalism.

5. Open a Business Account

From a legal perspective, you must separate your personal and business finances before you start collecting payments from clients.

Select a bank that does satisfy your needs by offering lower banking fees for small business clients. When you've chosen a financial institution, you'll need to provide some essential information about your business to open an account, including:

  • Social Security Number
  • Business documents
  • License and Permits
  • Ownership agreement documents

6. Consumer Protection Law

As a business owner, you need to understand consumer rights and responsibilities. And know about the tips and advice on complying with consumer protection laws.

This law covers many business-related topics, including advertising, product quality, privacy, security, and more.

The Consumer Protection Act was implemented in 1986 and it gives easy and fast compensation to consumer grievances.

It ensures the safety of the consumers to speak against insufficiency and flaws in goods and services manufactured by the company. If your company makes any illegal trade, this act protects their rights as a consumer.

7. Tax Reports

Because some states do not have a personal income tax, owners of some forms of business will not owe state tax on their business income. See your State Business Income Tax webpage for learning more information on taxes.

  • Sole proprietorships: Sole proprietors pay is bound to pay federal taxes on business income as part of their personal federal income tax returns.
  • Partnerships: Partners divide and pay the federal taxes on business income. In addition, most of the partnerships are subject to the state's franchise tax, but only owe the tax if total revenue exceeds a certain amount.

Limited liability partnerships (LLPs) and certain limited partnerships (LPs) must file an annual report with the SOS.

8. Trademark registration

Registering a trademark for a company name is pretty straightforward. Most businesses can file an application online for trademark registration in less than 90 minutes, without a lawyer's help.

Intellectual property that comes under trademark registration cannot be copyrighted. On the other hand, a property that can be copyrighted cannot be trademarked.

For example, a company can register its trademark for name and logo and copyright its videos and books. There are a few exceptions that can be protected by both a trademark and a copyright in the business industry.

Conclusion

The challenging pursuit of starting a business gets more complicated with all the legal implications that come with it. As a business owner, you must take care of all your legal bases to avoid any fines, lawsuits, or worst case even jail time in the future.

Fortunately, there is plenty of legal help you can get for small businesses both online and through hired legal counsel. Use this above list to jump-start the legal requirements for starting a small business and conquer success.

Checking these off your to-do list will help you ensure that you don't have any loopholes in the legal requirements. The sooner you take care of these legal requirements, the sooner you can focus on what you do bestselling your product or service.