If starting a new business is on your 2021 New Year’s resolution list, we’re here to help you begin on the right (and legal) path.
Here are 10 must-have legal documents you need to start a new business.
1. Business Plan
Technically, a business plan is not a “legal” document, nor is it required to start a business, but developing a business plan before you attempt to secure financing, look for office space, or even pick a business name, is highly recommended. Creating your plan at the beginning forces you to assess your goals and resources, strategize a road map for success, and determine the feasibility of your endeavor. In the business plan, outline your target market, your competition, and your capital needs, both for startup and three to five years out.
A well-organized business plan can help you develop other crucial legal documents needed for your new business.
If you run your business under a trade name or any other name that is different from the legal name of the business, you need to register a DBA for your Fictitious Business Name in the business’s home state. For sole proprietorships, the business’s legal name might be the owner’s name but could also run under an assumed name such as “The Marketing Guy.” To be completely transparent, the business owner needs to file for a DBA. The same principle goes for any other entity (partnership, LLC, C Corporation, or S Corporation) operating under a different name.
3. Partnership Agreement
A partnership is a legal entity where two or more people own and operate a business. Each partner owns a portion of the company’s assets and liabilities, and each is responsible for the debts, profits, and legal burdens. The partnership agreement details each partner’s share of ownership and responsibilities, including contributions, decision-making powers, distribution allowances, and steps for dispute resolution.
4. Incorporation Documents
The main reason many business owners decide to incorporate their new businesses is to minimize their personal liabilities. Once the business is legally incorporated, it exists as a separate entity, putting a barrier between the business and the owner’s personal assets. Incorporating also boosts the business’s credibility, allows the owners to sell stocks, and take advantage of several tax advantages for corporations. To register as a C corporation, there are several legal documents you need to file.
- Articles of Incorporation – Each state requires a business to register Articles of Incorporation in the home state of the company. You can find the form for these documents on the Secretary of State’s website. Once filed and approved, the state considers the business “domiciled” in that state (i.e., the state is the corporation’s home state). The corporation is now obligated to conduct business according to the laws and codes of the state. (There is also the option to incorporate your business in a different state than where your business is located, more on that later.)
- Bylaws – When you initially register your corporation, you must also file bylaws with the state. Bylaws are documents defining how the company will govern itself. Bylaws include information, such as the number of board directors; the directors’ powers; dates, times, and locations for annual board meetings; how directors are elected and removed; officer duties; and voting rules.
- Meeting Minutes – Corporations are required to hold at least one annual board meeting and keep minutes recording the meeting’s topics and decisions. The meeting minutes should include the time and place and who attended (or waived attendance), all actions such as purchasing decisions, elections, etc., and a signature and date of the person recording the minutes.
5. LLC Articles of Organization
If you choose to structure your business as a Limited Liability Company (LLC), you will need to file an Articles of Organization in your business’s home state. An LLC is also a separate legal entity from its owners (known as “members”) and can be formed as either a single-member LLC or a multi-member LLC. Many business owners choose to register as an LLC because there are fewer filing requirements and looser organization regulations. The LLC Operating Agreement is like the Articles of Incorporation for C Corps and requires state registration through the Secretary of State office. Likewise, you should create an Operating Agreement for your new LLC, which outlines the members’ duties, responsibilities, and organization of the company. Not all states require LLCs to file the Operating agreement.
6. Foreign Qualification
For tax benefits or other reasons, some business owners decide to incorporate in a different state than where they conduct business. In those cases, the business owner must “foreign qualify” in the state where the business is conducted. To file for foreign qualification, a business must submit a Certificate of Authority application form and pay the fees to the Secretary of State office.
Even if you are incorporated in your home state, if you want to expand your growing business to other states, you’ll need to file for foreign qualification.
An Apostille is an additional authentication/certification required for international acceptance of documents, including Articles of Incorporation and Articles of Organization. If a foreign country requires official state documents, the completed Apostille certifies the signature’s authenticity on the documents. You can apply for an Apostille through the Secretary of State office or through CorpNet.
8. Business Licenses and Permits
Depending on your business’s industry, you will most likely need specific business permits to conduct business. At the very least, you will need a business license from your city or county government. Specialty licenses are required for professional and niche businesses that require specific skills to operate, such as hair and nail salons, accountants, attorneys, plumbers, and daycare.
Most required licenses and permits are issued by the city, county, or state where your business is located. You will most likely need permits for security alarms, parking lots, sidewalk cafes, entertainment, and more. If your business is regulated by a federal agency (such as alcohol or tobacco), you’ll need to apply for a federal license or permit.
Businesses selling products and services subject to sales taxes need a sales tax license from the state tax authority office in all the states where they conduct sales. Companies that sell on a wholesale basis need a reseller license (resale certificate).
9. Federal Tax ID
Businesses operating as a sole proprietorship don’t need a Federal Tax ID number if they don’t have any employees; they simply use the owner’s social security number on all legal documents. However, if your business is a Corporation, Limited Liability Company, or a partnership, you must apply and obtain a Federal Tax ID number or Employer Identification Number (EIN) through the IRS.
It’s vital to protect your business assets when starting a new business. Your trademark is one of those assets you want to officially own so it can’t be stolen from you. What is a trademark? A trademark is any word, name, symbol, or device, or any combination of those used in commerce to identify and distinguish a business’s goods. Without the protection of a federally registered trademark, your brand can be stolen, or your business could be at risk of infringing on another company’s registered trademark.
CorpNet is here to help with all your new business legal documents. Contact us today!