Starting a business is a challenging task whose success depends on a large number of factors that are not always under the entrepreneurs’ control. This thought, however, doesn’t have to be discouraging. It was only intended to illustrate that foundations we are able to build need to be laid with as much care and dedication as possible.
That brings us to the legal requirements which are probably the most important prerequisite one business owner needs to take care of for a successful launch.
If these cornerstones are compromised, all of the following efforts, no matter how ambitious they are, may soon crumble to dust. So, let’s take a look at some of the essential legal requirements you need to check in order to make your business fly.
Designate the right business entity
This is one of the most important decisions you will need to make in your career as an entrepreneur since the type of legal entity you are going to choose will determine what you pay in taxes, your personal liability, etc. At the moment, you have five options to choose from:
- Sole proprietor
- Partnership (General partnership, Limited liability partnership, Limited partnership)
- C Corporation
- S Corporation
- Limited liability company (LLC)
Most small businesses start their journey as LLCs since in this case owner’s personal assets are fully protected. They are also a good choice if you intend of raising loans or using venture capital. Partnership and a sole proprietorship, on the other hand, require a minimal amount of paperwork so they are easier to set up.
Choose and register a business name
This task may vary depending on the type of legal entity you have chosen but also the country you live in so the process doesn’t necessarily have to be the same in New York and Melbourne. But, in most cases, registering a business name is reserved for separate legal entities like corporations and LLC.
But, even if you are engaged in sole proprietorship or partnership you have an option of operating under the name that is not yours under the DBA (Doing Business AS) arrangement. DBA can also be used by LLCs and corporations to register their subsidiaries under a different name.
Register for IRS and local agencies
Again, this process will vary depending on the region so your business lawyers from Essendon will not go through the same process as their colleagues from Brookline. But, taking the USA as an example, your company will need to register with IRS to receive your Employer Identification Number (EIN). In this case, hired professionals will help you find the best arrangement and make sure you are compliant with all tax laws. Once this is done, you will most likely have to register your business with local agencies like for instance revenue offices.
Apply for permits and licenses
Every business needs specialized licenses and permits sorted out before it’s ready to start serving the customers. For instance, IT startups will need an entirely different set of paperwork from restaurants. In the case of federal states, you will also have to remember that you will need to acquire both federal and state licensing.
In the case of the United States, the US Small Business Administration has made this job considerably easier by offering a streamlined way of searching the permits and licenses you need to get going. You only need to enter your location and the type of business and you will get a complete list.
Compile a written founders agreement
If you are setting your business as a partnership or your legal entity will have multiple owners, it is very important to make sure that each of the parties involved in the process understands the rights and responsibilities that come along the way. In the case of LLCs, this document will come in the form of an LLC operating agreement and articles of organization.
On the other hand, if you are starting a corporation, you will need to compile articles of incorporation and a proper shareholder agreement. Also, you will need a designated legal counsel to make sure all these articles and agreements comply with the law.
From this point on, all you have to do is to make sure you perform proper bookkeeping and you should avoid any legal problems along the way. The present-day business environment is already overly complex and hard to navigate even as it is. You don’t have to make this problem even worse by getting your company into legal problems from the get-go. Setting your startup on a sound foundation will make sure most of these growing pains are gone.