When starting a small business, you need to comply with legal obligations. These vary depending on the nature of your business and your location.
Researching federal, state, and local guidelines and regulations, including zoning, licensing, employment, permitting, and tax laws, is essential to ensuring compliance.
To help you navigate the complexities of how to legally start your business, here are 12 common legal requirements that small businesses should be aware of.
1. Choosing a formal business name
Every business needs a legal name. Depending on the structure of the business, this may be the owner's name or the name listed on the incorporation documents.
When choosing a business name, you need to understand business naming conventions. For example, LLCs and corporations must register their corporate names with the state. This occurs during the formation process. However, you can also reserve a business name by submitting a form with your incorporation status.
The type of business structure you choose also has naming conventions and requirements. When forming a corporation, limited liability company (LLC), limited liability partnership (LP), or limited liability partnership (LLP), you must follow the name requirements of the governing entity's statute. For example, one of the rules for the name of an LLC is that it must include the words “Limited Liability Company,” the letters “LLC” or “LLC,” or other words that indicate the entity is a limited liability company. about it.
Even if you are a sole proprietorship or a partnership, you are subject to certain restrictions, such as not using a name that is misleading.
Read more about naming your startup and how to register your LLC business name.
2. Register your business with the state
If you choose to form an LLC or corporation, you will need to register your business with your state. Both legal entities offer benefits such as protection of personal assets, tax benefits, and increased business credibility.
To form an LLC or corporation, you must file formation documents with the Secretary of State's office (or equivalent agency that handles business entity formation).
Sole proprietorships and general partnerships typically do not need to file formal paperwork to legally start or operate. Note: Certain states, such as Alaska and Washington, require for-profit organizations, including sole proprietorships and partnerships, to register with the state.
See below for more information.
3. Appointment of registered agent
If you operate an LLC, corporation, LLP, LP, or nonprofit organization, most states require you to appoint a registered agent in the state in which you form your business. If your company is registering to do business in another state (a.k.a. foreign qualification), a registered agent is usually required in the state in which it is licensed as well.
The registered agent is responsible for receiving important legal and tax documents on behalf of the company, such as service of process (or notice of action), franchise tax forms, and annual reports.
Not everyone can be a registered agent. Your company's agents must meet the appropriate standards. For more information, see What is an Enrolled Agent?
4. Obtaining an EIN
Almost all businesses, including LLCs, corporations, and businesses with employees, require an Employer Identification Number (EIN), also known as a Federal Employer Identification Number (or FEIN).
EINs are issued by the IRS. Similar to your Social Security number, you must use this number to identify your business on tax returns and other tax documents. It is also required by banks, financial institutions, business credit card issuers, and vendors. For more information, please visit the IRS website.
5. Register your state tax ID
If your business sells goods or services, you may need to register with your state Department of Revenue and apply for a sales tax ID number. Each state is different, so check your state's website for specific requirements. For more information, visit the U.S. Small Business Administration website.
6. Reporting beneficial ownership information (BOI)
Many small businesses will soon be required to report information about their beneficiaries to the Treasury Department's Financial Crimes Enforcement Network (FinCEN).
Beneficiary means a person who directly or indirectly exercises effective control over, or owns or controls at least 25% of, the reporting company.
This reporting requirement will take effect on January 1, 2024.
FinCEN provides detailed information regarding this new requirement in our Beneficiary Information Reporting FAQ.
7. About trademark registration
Trademarks can provide legal protection for brands, logos, products, and services. Trademarks are registered with the United States Patent and Trademark Office (USPTO). Trademark registrations can include brand names, slogans, logos, or key products or services. For more information, see What is a Trademark?
8. Applying for a DBA
If you choose to do business under a name that is different from your legal entity's legal name, you can submit a “business name” or DBA name. DBA is also referred to as a trade name, pseudonym, or fictitious trade name. Sole proprietors and partnerships that are not registered as legal entities can choose to use their DBA following the same process. You may also be required to do so before opening a business bank account.
DBA applications are filed with the state and/or county. Some jurisdictions offer the option of filing for her DBA in the county where the business is located or in all counties within the state.
For more information, see What is a DBA? (and how to register).
9. Zoning regulations
Local zoning regulations affect all businesses, including home-based businesses. You may not be able to run your business out of your home.
Before starting your business, check with your city or town government regarding zoning ordinances. If you have any questions, please consult an attorney. These will help you interpret the ordinance and understand what is enforceable.
10. Obtaining business licenses and permits
Most businesses require a business license or permit. Licenses are issued by federal, state, county, city, and local governments. For more information on general business licenses, home business licenses, and more, visit state and local government websites. A federal license is typically only required if your business is regulated by a federal agency, such as the Bureau of Alcohol, Tobacco and Firearms.
Additionally, you may be required to obtain professional or occupational licenses and permits. Target companies include pharmacies, construction companies, building companies, medical institutions, and beauty salons.
11. Understand your legal responsibilities as an employer
Hiring employees brings additional responsibilities, including compliance with labor and employment laws. As an employer, your obligations include paying employees appropriately, withholding employment taxes, maintaining records, complying with regulations regarding the employment of minors, and providing unpaid or medical leave to covered employees. there is.
Here is a breakdown of important employment laws:
- Fair Labor Standards Act (FLSA): Federal wage and hour laws cover issues such as minimum wage, overtime, child labor, and equal pay for equal work.
- Occupational Safety and Health Act (OSHA): We are required to provide a safe and healthy working environment.
- payroll tax: Employers have various federal tax obligations, including withholding and paying FICA payroll taxes (Social Security and Medicare taxes) and Federal Unemployment Tax Act (FUTA) taxes.
- Employee Retirement Income Security Act (ERISA): This law affects certain administrative aspects of employee benefits and retirement plans.
- Consolidated Omnibus Budget Reconciliation Act (COBRA): If you have 20 or more employees, you must offer individuals who lose benefit protection the option to continue their group health care plan coverage.
- Family and Medical Leave Act (FMLA)): Requires employers with 50 or more employees to allow workers to take unpaid leave under certain circumstances.
State-level requirements may include:
- Registration with the state for workers' compensation
- Register for state unemployment insurance
- Report new hires to appropriate state agencies
- Providing disability benefits and paid family leave benefits
- Provide some form of health insurance benefits
Note: Each state may have its own laws regarding minimum wages, worker classification, etc.
12. Get business insurance
In addition to state unemployment insurance, you may be required to carry general liability insurance, professional liability insurance, and commercial auto insurance.
Additional legal considerations
The following may apply to your business. If you are unsure, check with your attorney.
1. Application for foreign qualification
If you do business in multiple states, you must establish your business in your home state and apply for foreign status in each state in which you operate. For more information, see Doing Business in Other States (Foreign Qualifications).
2. Annual report and franchise tax filing
If you operate an LLC or corporation, you must file an annual report and pay any associated fees or franchise taxes. Some states also require LLCs to file an initial report soon after formation. For more information, see What is an LLC Annual Report and How to File an Annual Report for Your Business?
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