What Are Laws for Starting a Business?
2. Choose a Business Location
3. Business Registration
4. Obtain an EIN/Tax ID
5. Understand Your Obligations to Employees
6. Obtaining Permits and Licenses
7. Filing for DBA
8. Determine Your Business Structure
If you follow the laws for starting a business, the process becomes smooth and hassle-free. Starting a new business can be stressful and exciting at the same time. Here are some guidelines that will help you in this process.
Prepare your Business Plan
A well-written business plan is key to obtaining funding capital and continued financing. It also serves as a blueprint for the business' future operations.
Choose a Business Location
Although most individuals prefer setting up their business in their state of residence, there are benefits to organizing your business in other jurisdictions. For instance, most entrepreneurs favor the state of Delaware for its advantageous corporate laws. In some cases, operating overseas could be even more beneficial.
After selecting a business structure, your company must be registered in the jurisdiction you choose to operate from. This registration must be renewed yearly to make sure that your business continues to exist legally.
Obtain an EIN/Tax ID
Once your business has been registered, the next step involves obtaining an EIN from the IRS. This step is critical, because at this point you are creating a separate legal identity for your business. By doing so, you ensure the separate taxation of your business as an entity in its own right.
An EIN can be referred to as the social security number for companies. It enables the IRS to track your business' financial transactions. For sole proprietors, obtaining an EIN is not necessary; however, it may be a good idea to do so in order to avoid revealing your SSN in business dealings.
Understand Your Obligations to Employees
Once you hire an employee, your legal obligations as an employee come into effect. It's a good idea to seek advice from employment law professionals to fully understand the obligations and procedures. The employment law professional should explain the following:
- State and federal payroll and withholding of taxes
- Workers' compensation rules
- Self-employment taxes
- Unemployment insurance
- OSHA regulations
- Anti-discrimination laws
- Wage and hour requirements
Obtaining Permits and Licenses
Before you can commence operations (for certain types of business), you need to obtain the proper permits and license to operate in the municipality of your choice. Such licenses include occupational/professional licenses, sales tax license, health department permits, zoning and land use permits, general business operation license, etc. Your business may be subject to penalties and fines if these licenses are not obtained before commencing business activities.
Filing for DBA
You should file for DBA (Doing Business As) if the name used in conducting business is different from the registered name. If you are running a LLC or corporation, for instance, and officially register the business as IntraNet Ltd., but operate using the name iNet, then you should file for a DBA. In the case of partnerships and sole proprietorships, this means that if your business operates using a name that is different from yours, you should file for DBA.
DBAs can be filed at the county or state level.
Determine Your Business Structure
Depending on your business operations and its size, you can opt for an LLC, C corp or S corp, or even a partnership. Each of these business structures has different procedural and legal requirements, tax obligations, and system of governance. You should weigh all of these factors carefully before making your final decision.
If you wish to protect your personal assets, such as your personal property and savings, from any company liabilities, it is essential that you choose a corporation or an LLC as a business structure. However, you should be cognizant of what each business structure offers before making your final decision.
An LLC is ideal for small to medium-sized businesses that seek to evade the formalities of a corporation, yet want the legal protection of one. S corps are also great for small businesses, whereas C corps are for businesses that plan to go public or seek funding from venture capital investors.
Nevada and Delaware are the two most popular states for incorporating businesses; however, if your company has five or fewer shareholders, it's best to register an LLC in your resident state or where you plan on operating your business.
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