While your business idea or plan may be your top priority when launching a new venture, it is important to also focus on the business laws relevant to your industry. If you do not fulfill the legal compliance requirements by which you must abide, you and your commercial venture could potentially face severe legal penalties. It is recommended to research well and read all of the relevant laws before taking the first step toward starting your business.
When creating a new business entity, it is important that you comply with all the legal obligations. Here’s a small guide to help you understand the standard legal requirements that you need to fulfill.
1.Determine the structure of your business
The first legal requirement that you need to fulfill is determining the structure of your business. Your federal tax obligations will depend on your business. Therefore, before starting your business, you must choose the structure. Some of the choices include limited liability company (LLC), S corporation, C corporation, or sole proprietor.
- Sole proprietorship: This is a business owned and operated by a single owner who is solely responsible for the company’s operations and debts.
- LLC: An LLC offers limited liability protection and can protect the business owner’s personal assets, as the owners are not liable for the organization’s debts or liabilities. LLCs are popular because they provide the benefits of a corporation as well as a partnership.
- S corporation: An S corporation is a business structure that meets the Internal Revenue Service (IRS) requirements for taxation under Chapter 1. To be eligible for S corporation business structure, the organization should not have more than 100 shareholders. Additionally, all shareholders must be U.S. citizens or U.S. residents.
- Corporation:In the C corporation business structure, the corporation is taxed separately from the owners of the organization. There are no restrictions on the number of shareholders in a C corporation, nor are there any restrictions on shareholders’ citizenship or residency.
- Choose and register the organization’s name
When you file the paperwork to finalize your business entity, you must register and file a DBA (“doing business as”) form with the rest of the required documents. It will allow you to use that specific name for your organization, but it will not provide trademark protection. If you want to apply for the trademark, you must ensure that the name is available by searching on the U.S. Patent and Trademark Office’s website.
- Apply for an Employer Identification Number (EIN)
An EIN is used for tax purposes, and you must apply for it before starting your venture. You can use it to open business bank accounts and file tax returns. Sole proprietors and single-member LLC may not need an EIN. You can apply for an EIN online.
- Secure required licenses and permits for business operation
Certain types of businesses require federal or state permissions to operate. The rules are state-specific and may vary across the United States. The rules may also vary depending on the industry in which your business will operate. Therefore, it is recommended to carefully go through the industry-specific and state-specific rules that may apply to your particular type of company. Because noncompliance may lead to hefty penalties down the line, it would be ideal for you to apply for the required permissions and licenses before officially starting your entity.
- Seek insurance coverage for your business
It is important to understand that businesses are rife with risk and uncertainty. Therefore, you should protect your business and yourself with insurance and have a compliance plan ready for it. There are different types of insurance plans depending on your industry, the type of business you operate, and where your business is located.
However, the ideal insurance will depend on many factors, including your risk tolerance and the size of your business. These are some of the types of insurance that may be available to you:
- General liability insurance, which covers a wide range of incidents that may require assistance from an insurance company, such as libel, slander, and accidental damages
- Home-based insurance, which covers independent workers who work from their homes
- Errors and omissions insurance, provides protection from damages that occur because of an error or an omission that you or your business commits
- You can choose from these above-mentioned plans, while paying close attention to your needs relevant to the size of your business, the type of operations, and the industry in which you operate.
To start a business legally, you will be required to meet the above-mentioned legal obligations. If you need any assistance launching your company off the ground, you may reach out to an experienced Business attorney at The Hollywood Lawyer. They can help you complete the necessary paperwork and ensure compliance.