4 Legal Areas to Tackle When Starting a Business
6 min. Read
Last Updated: 05/24/2018
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For entrepreneurs new to the startup world, it’s easy to feel overwhelmed by the technical nuts and bolts required for starting a small business. What should be at the top of their to-do list? Are there certain legal steps, such as registering trademarks or filing for Doing Business As names (DBAs), to complete early on during the process? For small business owners who aren’t sure what to prioritize first, here’s a look at the four best legal practices to cover when starting up a new company.
1. Incorporate or form an LLC
One of the best ways to legitimize a business and keep professional and personal assets separate with liability protection is to incorporate or form a limited liability company (LLC).
Most entrepreneurs choose either an LLC or corporation as their legal structure. Ultimately, this decision depends on the type of business an entrepreneur is running and its industry. A limited liability company (LLC) is an entity that allows the owners protection from legal liabilities. An LLC may be ideal for companies in the restaurant or hospitality industries, since the entity protects assets in the event of unforeseen circumstances. For businesses planning to expand and eventually go public, a corporation may be their best bet. This entity has a structure that makes it possible to accept money from investors and, much like an LLC, it still provides personal asset protection.
2. Register unique trademarks
Most, if not all, small businesses have unique trademarks associated with their identity. These may include the name of the business, its logo, slogan, or design. The originality of these marks helps identify the brand and differentiate it from its competition, so they must be registered in order to protect them.
Remember that when filing to register a trademark, it’s important to conduct a name search first. This ensures that it is unique and no other business has a pending registration on a similar mark. Depending on the state you’re doing business in, you may contact the Secretary of State and consult them about the name availability, or conduct a search on the Secretary of State’s website. Entrepreneurs who work with a legal filing service may also have that service assist them in conducting a preliminary name availability check. This is done on behalf of the entrepreneur and determines if the desired business name is available for use. Once the trademark has been registered, it will become the entrepreneur’s property. If another business tries to copy it, their actions will be considered plagiarism.
3. File for DBAs and EINs
What do these acronyms stand for? A DBA is a Doing Business As name. Sometimes referred to as a “fictitious name,” a DBA allows entrepreneurs to conduct business under a different name from the company’s existing one. Entrepreneurs typically register for DBAs as a fraud prevention measure to ensure nobody else tries to register their business name. When filing to register a DBA, entrepreneurs are required to fill out specific paperwork and pay a filing fee with their local city or county, and sometimes state, agency. Once the DBA has been registered, entrepreneurs are able to open a business bank account and publicly market and advertise the business.
An EIN is an Employer Identification Number. This is also commonly referred to as a federal tax ID. If a small business is planning on hiring employees, an EIN will be used by the IRS to identify employer tax accounts. Small business owners also file for EINs as their ID to use on official documents if they do not feel comfortable using their social security number (SSN). An EIN is less sensitive to use than an SSN and helps to safeguard against identity theft. You may want to check in with the IRS and answer a few questions to determine if you need an EIN for your business. If you do, you may apply online, by fax, or by mail. When applying online, you must have a valid taxpayer identification number (such as your SSN) in order to complete and submit the online EIN application. For mail and fax applications, Form SS-4 must be completed and sent to the appropriate address or fax number. International applicants may also apply for an EIN by calling 267-941-1099 between 6:00 a.m. to 11:00 p.m. EST Monday through Friday.
4. Register for business licenses and permits
Every jurisdiction throughout the United States has its own required licenses and permits. While these requirements vary depending on the location and nature of your business, some commonly required licenses and permits include a business operation license, sales tax license, and health department permit. Before applying for any licenses or permits, you may want to check in with the U.S. Small Business Administration (SBA) to determine what you need from federal and state agencies.
Taking care of these four legal areas might be a little time-consuming, but it’s necessary to do so as soon as possible. The sooner you have incorporated your business, filed to register trademarks, filed DBAs and EINs, and registered for the appropriate business licenses and permits, the sooner you will be able to focus your attention back on the business. You’ll have an even greater peace of mind in knowing that you and your business are now in good standing.