So you have an idea and want to get that business off the ground – congratulations!!
When planning the steps to start your business, there are some legal aspects you don’t want to overlook. These steps may not be the most glamorous parts of starting a business, but you want to make sure the business is set up properly from the start to avoid issues down the road.
1. Choose a Business Name
Have an ideal name in mind for your business? That’s a great start, but before you get too attached and order those business cards you’ll want to make sure it’s legally available for use. You can do a corporate name search and/or check with your state’s Secretary of State database to see if the name is registered by someone else. I also recommend running a trademark search to see if someone has already filed for a trademark. If you search both places and the result is clear – great job! You should move forward with that name. If you find that the name is already in use – you may want to go back to the drawing board and brainstorm some other options.
2. Choose a Business Structure
If you don’t officially form a business structure your default is to operate as a sole proprietor. A sole proprietorship does not separate your personal and business finances so if down the line your business is sued, your personal assets can be threatened.
Forming an LLC or Corporation will protect your personal assets from any liabilities of the company.
Forming an LLC, otherwise known as the Limited Liability Company, is a great option for businesses that want legal protection without a lot of paperwork.
The C Corporation requires more paperwork and formalities, which can be a headache for small business owners. However, this structure is ideal for businesses that plan to reinvest their profits back into the company, seek venture capital funding or plan to go public.
Another popular structure is the S Corporation. The S Corp does not file its own taxes but is treated as a pass-through entity. It is a great structure for a small business owner who can qualify as the IRS places limited both on the number of owners and who can be an owner.
Not sure what structure is best for you? Try the CorpNet Business Structure Wizard that can help you decide!
3. Register Your Business Name
If you are forming an LLC or corporation, this step automatically registers your name with the state. However, if you choose to operate as a sole proprietorship or general partnership, then you will need to register your business name by filing a Doing Business As (DBA).
Registering your business name ensures that you are legally able to operate your business under that name in the state and also ensures that no one else can use the name in your state.
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