×
Try Our App!
Franchise Gator
In Google Play
GET IT NOW

New Business Legal Checklist

When it comes to starting a business, there are a lot of laws and regulations to follow. These legal requirements make sure your business is taxed properly but also ensure the safety of your assets and employees. Following a checklist gives you the ability to meet all of these requirements so you don’t have to worry about missing the big to-dos.

Franchise Gator has put together this guide for you to start your business journey. We offer hundreds of franchise opportunities to buy into an existing, proven business, and following our legal checklist should be the first step after you decide on a business. So what are the legal requirements of starting a small business, and why are legal requirements important?

What Are Legal Requirements in Business?

Legal requirements make sure your business not only operates according to federal and state laws, but also keeps your business safe in case of an emergency. When it comes to a list of things needed to start a business, meeting the legal requirements is the most important step. By using a legal checklist for small business, you’ll be able to meet all of the requirements necessary to have a successful business. Be prepared to complete a lot of documentation, but it will be worth it in the end!

We have compiled a free business checklist template you need to start your business:

  • Choose the right legal structure for your company to determine your business tax framework.

    • A sole proprietorship is owned and operated by one person, with no legal distinction between the owner and the business. Typically the business does not have a Taxpayer Identification Number (TIN). Instead, your Social Security number (SSN) is used. However, you can apply for an Employer Identification Number (EIN). Things to consider:
      • liability that could lead to losing personal property
      • reporting business losses as personal income
      • paying self-employment taxes

      The IRS provides a chart to help you determine any required forms you need.

    • A partnership is when two people split the profits while managing and operating the business together. All partnerships are required to obtain a single EIN instead of individual SSNs or EINs. With a partnership you have stronger financial power, more diverse skills, and a broader network. Things to consider:
      • sharing liability that could lead to losing personal property
      • risk of instability
      • hard to sell without both partners’ consent

      The IRS provides information on which forms you need to start a partnership.

    • A C-corporation legally separates the owner or shareholders and the business, which protects you from liability. To calculate taxable income, a corporation generally uses the same deductions as a single proprietorship. Special deductions are also available to corporations. Things to consider:
      • both the business and the owners are taxed separately
      • more regulations and higher complexity
      • it can be more expensive to start

      The IRS provides you with filing requirements to start a C-corporation.

    • An S-corporation avoids double taxes by shareholders reporting losses and revenues through their personal taxes. According to the IRS, to start an S-corporation, you need to meet the following criteria:
      • Be a domestic corporation (U.S. only)
      • Have only allowable shareholders
      • May be individuals, certain trusts, and estates
      • May not be partnerships, corporations, or non-resident alien shareholders
      • Have no more than 100 shareholders
      • Have only one class of stock

      Things to consider:

      • shareholders will be taxed despite income
      • all owners get paid a salary even without profit
      • several rules and fees.

      The IRS provides more information about filing for an S-corporation.

    • A limited liability company (LLC) has characteristics of a corporation, partnership, or sole proprietorship to protect the owner from liability. This means an LLC is taxed the same as one of these entities depending on structuring. Things to consider:
      • owners must pay self-employment taxes
      • member turnover leads to dissolved LLC
      • high costs.

      The IRS provides forms for LLCs depending on whether or not they would like to be taxed as a partnership or corporation.

  • Register a name for the government to track your business’s actions.

    • Check for availability to make sure your name isn’t being used by another entity to legally protect your business at the state level. Consider trademarking your business’s name to protect it federally.
    • File the business name with your state and federal governments. This requires a lot of documentation, so be prepared to provide your personal information, as well as things like the business address and Articles of Incorporation or Articles of Organization—and Fictitious Business Name (FBN) or Doing Business As (DBA) for sole proprietorships.
    • Purchase a domain name to get your business online and accessible for people to find.
  • Get an EIN from the IRS for proper taxation.

    To be eligible for an EIN, you must meet the following requirements:

    • Operate your business in the United States or U.S. Territories
    • Possess a valid Taxpayer Identification Number (SSN, ITIN, EIN)
    • Fill out IRS Form SS-4
  • Obtain required business permits and licenses for any business regulated at the state or federal level.

  • Open a bank account registered to your business.

    After you've chosen a bank, you'll need to provide specific details about your business in order to open an account, to separate personal and business accounts. Documents you’ll need include:

    • EIN or SSN
    • Formation of business documents
    • Business licensing documents
    • Ownership agreement documents
  • Purchase business insurance to protect yourself from liability.

    • General liability insurance will protect your company from property damage, accidents, medical concerns, and litigation settlements or verdicts.
    • Product liability insurance will protect your company in the event that one of your products is defective and injures a consumer.
    • Commercial property insurance protects your company from damage to property, including natural disasters, accidents, and vandalism.
    • Home-based insurance protects your equipment and inventory from any disaster if your business is based in your home—standard home insurance does not cover these items.
    • Workers' compensation insurance pays medical expenditures and a percentage of lost pay for employees who are injured on the job, as well as protecting companies from employee lawsuits stemming from these injuries.
  • Comply with securities laws to protect from insider trading and trading fraud.

    • Investors must obtain financial and other critical information about securities being offered for public sale
    • Deception, misrepresentations, and other forms of fraud in the selling of securities are prohibited.
  • Hire legal counsel to maintain compliance with laws and regulations and answer any legal questions when starting a business.

    Legal counsel should be experienced in the following areas:

    • Employment law
    • Contract law
    • Securities law
    • Intellectual properties law

Following this list of legal requirements for business will ensure your business meets the laws and regulations determined for your industry. This takes out a significant burden when filling out documentation. When working through the checklist, you should be as thorough as possible. Small business rules and regulations apply to companies of all types.

Of course, there are other ways to start a business that don’t require building from the ground up. If you’re wanting to be a franchisee of an established company, it’s important to note that many of the legal requirements are applicable to you as well. This makes sure the liability rests on your business and not the franchisor. However, often the business plans and other documentation are laid out for you. If that sounds like the direction you’d like to take, Franchise Gator has several opportunities available for you to start your franchising journey.

What Is the Role of Legal Requirements When Starting a Business?

Simply put, the legal obligations of a small business are meant to protect you as an owner and the business itself. But why is it important for business startups to comply with legal requirements? Without meeting these obligations, it’s not possible for you to start a business, so they are a necessary step in following your dreams. If you do not meet these requirements you could be taxed incorrectly or face legal consequences from the federal and state governments. These laws and regulations make sure all businesses meet the standards of each industry.

When starting a franchise, the importance of legal requirements in business applies as well. While a solid plan helps get the business off the ground, there is no way of avoiding the legal requirements. Even though a company has a business plan laid out, franchisors do not assist in setting up your proprietorship or corporation. In fact, the franchisor may be a corporation or limited liability company (LLC), but your franchise business does not automatically gain that status. To enjoy the benefits of these legal strategies, you must still make your business a corporation or LLC. However, you do get the benefits of the trademark, distribution system, and training.

 

Take the First Step with Franchise Gator

Legal requirements can be daunting, but the whole business process doesn’t have to! At Franchise Gator, we have hundreds of franchises for sale that you can search for based on your location and starting investment. With our Franchising F.A.Q. page, you’ll find a crash course to franchising. Our yearly Top 100 list will get you on track with the best franchising opportunities we offer. You can get started with businesses like Mathnasium or Wings Etc. in just a few clicks. Ask for more information about Franchise Gator’s available opportunities so you can start the process of owning your own business today.

This site uses cookies. By continuing to browse the site you are agreeing to our use of cookies. Review our cookies information for more details.

We are asking for your phone number so the businesses you have requested more information from can call/text you to chat with you more about their opportunity. We do not share your phone number with anyone other than the specific businesses you are interested in learning more about.