Every January, the number of new businesses spikes. Maybe you’re starting to work independently this year. You’ve got your business plan down; you’re an expert at whatever service you provide. But, how well do you understand the legal aspects of your business?
Whether you’re just starting out or have been running a business for years, run through this checklist to better understand what you need to do to make sure your business is legit.
1. Pick a name (and make sure it’s legal)
You’ve got the coolest name for your new business, but is it legally available to use? Before you dive in too far with your branding, you need to make sure that the name isn’t infringing on the rights of someone else’s business. This isn’t a complex process – you don’t need an attorney. In seconds, you can perform a free trademark search to see if your name is available to use in the U.S.
Name conflicts are one of the main reasons many LLC or corporation applications get rejected. By checking to make sure your name is available, you’ll have the peace of mind of knowing that your state or county processing office won’t reject your LLC, corporation, or DBA registration because the name is already in use.
2. Choose a business structure
If you don’t create a formal business structure for your business, then by default you’re operating as a sole proprietor (assuming you’re the sole owner). While the sole prop might be the right choice for certain situations, you should consider your business structure carefully. With a sole proprietorship, there’s no separation between the business and business owner. That means that if your business is sued or can’t pay its debts, you can be personally on the line. You can read more about liability and your business here.
Formal business structures, such as the LLC, C Corporation, and S Corporation, help to separate your personal assets from the business. Each structure has its own set of advantages or disadvantages depending on your specific situation. For example, the LLC is ideal for people who want legal liability protection, but also want minimal administrative formality. The C Corporation is better for companies who plan to go public or get VC financing. And the S Corporation is great for small businesses that can qualify. You can read more about the specific tax implications of each business structure here.
3. Register your business name
If you form an LLC or Corporation, your business name gets registered at this point. However, if you decide you’re not ready to incorporate, then you need to register your business name with your state. To do this, you’ll need to file a DBA (Doing Business As). This step makes sure you’re legally able to use the business name in your state. It also makes sure that no one else can use the name in your state either.
Bear in mind that if you’re a sole proprietor using your own name as your business, you don’t need to register it. For example, if Jane Doe provides writing services to her clients as Jane Doe, she doesn’t need to register her name. But if she calls her business “Writing by Jane,” she will need to register the name.
And while filing a DBA does protect your name in your own state, it won’t do anything to stop somebody from using that name in any other state. To protect your name in all 50 states, you’ll need to file for trademark protection.
4. Get a federal Tax ID number
A U.S. Federal Tax Identification Number (which is also called an Employer Identification Number) lets the IRS track your company’s transactions. Think of it as a social security number for businesses. If you’re operating as an LLC or corporation, your business is required to have a Tax ID number. If you are a sole proprietor, you’re not obligated legally to get a Tax ID number, but it’s smart practice. With a Tax ID number for your business, you won’t have to give out your personal security number to every client or vendor who asks for it.
5. Get up to speed on employee laws
If you have hired an employee or are thinking about hiring an employee for your business, you need to be on top of all the employment law intricacies, including: payroll and withholding taxes, unemployment insurance, anti-discrimination laws, OSHA regulations, workers’ compensation, and wage/hour requirements. If you’re new to hiring, you should consider speaking with an employment law professional to fully understand your obligations as an employer.
6. Get any permits
Depending on what kind of business you have, you may need to get business licenses from your state, county, or town. Examples include: zoning permit, sales tax license, permit from the health department, professional licenses, or a general business operation license. If you’re a caterer, lawyer, or childcare operator, you’re probably fully aware about the need to have safety permits or licenses. However, in some cases, even a freelance PR pro may need to have a permit for a home office.
The start of a new year is a great time to get your legal foundation squared away for your business. It’s never too early to get started – and if you’ve been running a business for years without thinking about these things, now’s the time to catch up!
About the author: Nellie Akalp is a passionate entrepreneur, small business advocate and mother of four. As CEO of CorpNet.com, a legal document filing service, Nellie helps entrepreneurs start a business, Incorporate, Form an LLC, or set up Sole Proprietorships (DBAs) for a new or existing business.