Entrepreneurship is both thrilling and demanding. There are other legal requirements involved that you should know after doing your research, writing a business plan or roadmap, and agreeing on a business arrangement such that your company operates with all the necessary licenses and permits.
Before you start your company, here are essential legal standards to study and understand.
- Register your company
Have you ever noticed those reports of endless fictional names in your local paper’s classifieds? You might as well need one. You will file a DBA (Doing Business As) if your company is doing business under a different name. When you are a sole proprietorship or general partnership, when your company name is different from your name, a DBA is required. A DBA must be filed for an LLC or corporation to conduct business using a name that is different from the official name of the Corporation or LLC that you registered.
- Attain an EIN
Any company that operates or has employees as a corporation or association would require an Employer Identification Number (EIN). The EIN defines your company for tax purposes. Think of it as your company’s Social Security number, which can be used to open a business bank account, file tax returns, which apply for business licenses. IRS EIN Assistant online is the fastest way to apply for an EIN, or you find a legal form opinion either online or offline. You are not allowed to obtain an EIN if you act as a sole proprietorship, but getting one is a way to establish a further distinction between corporate and personal liability.
- Get licenses and business permits required
Like every other company, independent contractors must get proper licenses and permits. You can need to be certified at both federal and state levels, which depends on your profession and company location. For companies engaging in operation that is supervised and controlled by a federal agency, Federal licenses are required. State licenses and permits differ according to the venue; you can read about legal workplace advisement to get more insight into the type of license you need to acquire for your company.
- Prepare to pay local and state taxes
You might not be liable only to income tax, and it is necessary to consider other potential tax conditions that you may face. Most independent contractors are regarded as self-employed and are therefore subject to payment of tax on self-employment in addition to income tax.
- Business insurance
Business insurance can cover you in situations where the personal liability security provided by your business structure is not adequate. Business insurance is not only able to cover your assets but also your business assets. Constitutional provisions extend to other forms of insurance, such as unemployment and disability insurance. Buying business insurance also is an excellent idea to protect your startup from other potential risks. Some options specific to business insurance include:
Business liability insurance: Protects your company against different sources of financial risk, including damage to property, illness, medical conditions, legal proceedings, or judgments.
Consumer liability insurance: When the company sells goods, this insurance will protect you if one of the products is faulty and the consumer is injured
- Submit your company or form an LLC
Forming an LLC or corporation is an essential step towards protecting your assets (such as your personal property or the college fund for your child) from any corporate liabilities. Each business structure has attached to it its share of pros and cons, depending on your specific circumstances. Three common choices are the LLC (great for small businesses seeking legal security but limited formality), S Corporation (great for small businesses that may qualify), or C Corporation (for companies preparing to receive capital from a VC or go public).
- Trademark rights
You are not mandated by law to register a trademark. Using a name instantly gives you, even without formal registration, universal law rights as a proprietor. Registering a trademark also makes retrieving your assets far more straightforward, as if anyone is using your business name as their Twitter handle. Getting the correct paperwork means you have the legal right to do so, and Twitter will take action to grant you the right.
- Open a bank account to continue credit building
Your mortgage, auto loan, and own credit cards all impact your ability to apply for a business loan (and how much) if you rely on your credit to finance your business. The use of business credit separates your activities from business activities. You should open a bank account in your company’s name to start building your business credit, and the account should show a cash flow capable of taking on a business loan.