If you’re starting a business, you’ll need a plan to deal with all of the legal requirements associated with having your own company. Some requirements to start a business are set at the federal level, while others are determined by states. This guide is designed to help you navigate the legal requirements to start a business.
“Doing Business As” (DBA) Name
For starters, your company will need a “Doing Business As” (DBA) name, sometimes called a “Fictitious Business Name” (FBN). This registered name is a requirement, particularly for sole proprietors, but registering your business name will give any business owner greater flexibility in building their brand.
If you don’t register your business name, your company will default to your personal, legal name. However, lenders, vendors, and others may find this confusing, so having a DBA name will smooth out your business relationships in multiple areas.
A Registered Business Structure
One of the most important requirements to start a business is how your company is structured. Keep in mind that this is more than a mere formality. Your business structure will determine everything from your day-to-day operations to how you handle your books and pay taxes.
The following are the most common business structures in use today:
- Sole proprietorship: one owner
- Partnership: two or more owners
- Limited Liability Company (LLC): offers personal protection against most liabilities
- Corporation: a business entity completely separate from the owner
Each of these entity types has its pros and cons, so choose carefully. For instance, building a corporation offers the greatest legal protection but can be complex for those in the early stages of starting a business.
A Tax ID Number
The IRS requires every business to pay taxes, and one of the primary ways they facilitate this process is through an Employer Identification Number (EIN). This number serves the same function as your Social Security number and helps the IRS identify your business for tax filing purposes.
Technically, an EIN is only required for partnerships, corporations, or companies with employees. But even if you’re a sole proprietor or run an LLC, applying for an EIN can make it easier to file your taxes.
Sole proprietors may want to obtain an EIN as it will save them from having to put their personal SSN on official business forms and loan applications.
Federal and Local Licensing
Depending on your industry and location, you may face additional requirements to start a business. If you’re starting a business that serves alcohol, you’ll need to obtain the right federal and local licenses and display them in your establishment.
The federal government requires specialized licensing for businesses that operate in sectors regulated at the federal level. In addition to alcohol, this includes firearms, tobacco, certain types of agricultural supplies, and other industries.
Additionally, your business may face state or local requirements, often relating to issues like noise and occupying capacity.
All of your licenses and permits must be displayed inside your business, and failure to do so can result in fines or even the loss of your license.
If you have employees, you are federally required to carry business insurance, including insurance that covers workers’ compensation.
Other business owners may still be required to carry insurance by other entities. For example, your lender may require you to carry insurance before approving you for a loan, and your landlord may require an insurance policy before they allow you to rent commercial space.
A Business Bank Account
When starting a business, it’s not unusual to use your personal finances to cover a few business expenses here and there. But it’s extremely important that you keep your personal and business assets separate.
Mixing your business and personal funds will make it a nightmare once tax season rolls around. More significantly, using your own bank account can jeopardize your personal assets if your business should face financial hardship.
You can protect yourself from these legal complications by opening a separate business bank account as soon as possible. Most major banks have options for business owners and also offer additional features such as loans and business lines of credit.
Get Started Faster
These legal requirements can be difficult to navigate if you don’t have much business experience. That’s why a franchise can be a great option. When you operate a franchise, the franchisor can provide resources and guidance to help you comply with these requirements, helping you get started faster.
Search for franchises in your area using the listings on FranchiseGator.com. For more information, you can also contact our friendly team.