Legal requirements for startups

You may have a brilliant new business concept but first, you have to ensure that you comply with all the legal requirements. To start your company lawfully here's are a few steps to be followed.

Oct 29, 2020 - 20:24 Updated: Jul 16, 2021 - 16:45

1. Create an LLC or Corporation

As a prospective business owner, the first legal requirement is to follow and pick the company's business arrangement. You can choose between building an LLC or a corporation.

LLC: Under certain cases, A LLC, or Limited Liability Corporation, protects you from criminal liability. It means that your personal belongings, will not be at risk if your company is sued or if it enters bankruptcy. For the LLC, you will be eligible to file your company revenue as part of your personal income tax, but you are expected to continue to pay a self-employed income tax.

Corporation: The corporation is technically distinct from its holder or shareholders. Corporations provide the highest degree of personal liability protection in their company systems. They are more costly and difficult to shape. Corporations are filing independent income tax on their earnings.

2. Register Business Name

Once you have chosen the name, make sure it is asserted and approved. Here are four ways to register it, each of which serves its own purpose:

Name of the entity: lawfully protects your business at the state level
Trademark: lawfully defending your company at the national level
A DBA (Doing Business As): does not provide legal cover but may be required depending on the position and business structure.
Domain Name: Reclaims your web address

3. Apply Federal Tax ID

Your federal tax identification number is known as the Employer Identification Number (EIN) which allows you to lawfully recruit workers, pay federal taxes, register for business licenses which open a business bank account. You can apply for an EIN via the IRS website.

4. Permits & Licenses

The Small Business Administration has a list of common federal business licenses required. At the state level, the licenses and permits necessary and the payments required will depend on where you are based and what your primary business operations are.

5. Insurance

Business insurance will protect you in situations where the cover of personal responsibility provided by the particular business structure is not adequate. Company insurance will cover not just your personal belongings, but also your business assets. Any of the popular business insurance options include: