Firstly:
- Take your time
- Follow the advice
- Go step by step
- Persevere
You may be holding at an earlier stage than making your
business entity legal, in which case start here: How to Start a Small Business
Establish Your Business Entity’s Structure
Small business rules and regulations require you to define
how your business will financially interact with the IRS and the US government
and determine your future monetary relationship with them. This decision point
is critical, because it also affects your liability exposures and how to raise
capital for your startup.
When considering how to start a small business take into account the most common business entity structures:
- Sole proprietorship is a business that’s owned and operated
by one individual. Offers the owner a high degree of control and flexibility
and minimal regulatory burden.There is no legal distinction between the
business and the owner, which can expose you to unlimited personal liability
and suboptimal tax treatment. The structure can also limit your ability to
raise capital.
- General partnership is an agreement between two or more
people regarding the operation of a business.Outlines each partner’s
decision-making authority and claim to net assets and future earnings. All
partners are exposed to unlimited personal liability and must report their
partnership earnings on their individual tax returns.
- C-corporation a business entity that is legally separate
from its owners, which means the corporation and its owners are taxed
separately. This can result in double taxation – once at the corporate level
and once at the individual level, if taxable distributions are made. A
corporation offers its owners protection from personal liability, but it is
relatively expensive and complicated to form.
- S-corporation is very similar to a C-corporation, except
when it comes to taxation. An S-corporation allows its owners to recognize the
business’s tax liability on their individual returns, thereby avoiding the drag
of double taxation. However, a business entity must meet specific Internal
Revenue Service (IRS) business regulations to qualify as an S-corporation.
- A limited liability company (LLC) is a structure that makes
a legal distinction between a business and its owners. It provides the limited
liability protection of a corporation and the pass-through taxation of a
partnership. See the U.S. Small Business Administration: Different Business
Structures. It is similar to an S-corporation, but relatively inexpensive and
less complicated to form.
Register Your Business Entity’s Name
Once you’ve established your business structure, you need to choose and register your business name. As outlined below, there are four distinct ways to do so.
- A business entity name legally protects your business at a
state level by preventing other businesses from operating under similar
names.The registration process differs from state to state.
- A trademark legally protects your business entity’s name,
products and services at the federal level. You can apply for a trademark
through the U.S. Patent and Trademark Office. Trademarks are not required to
operate a business, but registering gives you exclusivity rights that do not
otherwise exist.
- A DBA (doing business as), which is also known as a trade
name, doesn’t offer legal protection, but is generally required if your
business uses a name other than its official legal name.
- Domain name: A website address protects your business’s
online presence. There is no business regulation to register a domain name, but
failure to do so could diminish your ability to effectively brand your
business.
Obtain an Employer Identification Number (EIN)
After establishing your business structure and registering
its name, you must acquire an Employer Identification Number (EIN). This is
your business’s identifier for taxation purposes.
It's also relevant for the following: Applying for business
licenses and permits, hiring and paying employees, opening commercial bank
accounts, establishing vendor relationships and processing regulatory filings.
To qualify for an EIN, business regulations require you
operate primarily within the U.S. or its territories, have a legal social
security number or taxpayer identification number and complete an IRS Form SS-4.
If you operate as a sole proprietorship or single member
LLC, you are not required to obtain an EIN.
Obtaining one can shield your social security number on
business documents and help protest against identity theft. Apply for an EIN
number online via the IRS’s EIN Assistant.
PRO TIP:
The EIN is a federal identification number. Depending on your location, you may also need to obtain a state tax identification number. Visit your state website to determine whether you need one.
Obtain Your Business Entity’s Permits and Licenses
- Depending on your industry and where your business is
located, you may need to obtain permits and licenses at the federal, state
and/or local level.
- A federal license is required for any business involved in
activities supervised or regulated by a federal agency: Financial services,
transportation, agriculture, broadcasting and alcoholic beverage production,
distribution and sales.
- Licensing requirements vary widely at the state and local
levels. Be sure to check with the appropriate government bodies to ensure
compliance.
Other Notable Startup Business Regulations
Here are some more tips for starting a business. In addition to the aforementioned legal requirements, a number of other business startup initiatives warrant disclosure. They aren’t legally-stipulated rules or regulations, but they are essential undertakings for new businesses.
Protect Your Business Entity with Insurance
- Your business is exposed to a variety of risks.
- The best way to protect against them is via insurance.
- There are several different types of insurance policies that
can be used to safeguard your assets and mitigate liability exposures.
- The most common include commercial property, general
liability, professional liability, workers’ compensation and auto insurance.
Open a Commercial Bank Account
- Depending on the business structure, it may be a
requirement.
- Keeping business and personal finances separate should
always be a priority.
- It can mitigate your personal liability exposure.
- It will elevate your business’s professional image and
facilitate downstream access to credit facilities.
Where to get free business regulation guidance
Seek guidance and comprehensive support from an experienced
attorney when complying with small business rules and regulations. If your
business start up costs prevent you from doing so there are organizations that
will guide you through this process every step of the way:
- Business Network International
- Young Presidents Organization
- Small Giants Community
- Vistage
- Startup Grind
- Founder Institute
- Baby Bathwater Institute
- StartUp Nation
Final Point
Establishing a compliance plan to address the legal
requirements for starting a business must be a priority not just ensuring the
smooth running of your business but also in acquiring investments and funding.
If this is something you're looking for, explore Torro for
your startup business financing needs. Finimpact.com ranks Torro near the top of its list of startup business lenders, largely due to its
competitive loan limits, relatively flexible repayment terms and stellar user
reviews. You can also check out our startup capital page to get a better
insight into this process.
