Legal Requirements for Starting a Small Business: What You Need to Know

Starting a small business is exciting, but it’s also a lot of work—especially when it comes to making sure you’re legally compliant. Skipping or missing key legal steps can lead to headaches, fines, or even worse, shutting down your dream business. Don’t worry though, getting your legal ducks in a row doesn’t have to be intimidating. In this blog post, we’ll walk you through the key legal requirements for starting your small business in a way that’s easy to understand and follow.

Disclamer: These requirements are not legal, financial advice or any other sort of advice. All materials here are for informational and entertainment purposes only. It is based on our own research to provide you accurate informations. You have to do your own research as well. 

1. Choose the Right Business Structure

First things first, you need to decide on the legal structure of your business. This is super important because it affects how much you pay in taxes, your personal liability, and how much paperwork you have to deal with. Here are the most common options:

- Sole Proprietorship: The simplest structure. You and the business are the same entity. It’s easy to set up, but you’re personally liable for any business debts or legal issues.
- Partnership: If you’re starting the business with someone else, this structure lets you share responsibilities, profits, and liabilities.
- Limited Liability Company (LLC): An LLC combines the simplicity of a sole proprietorship with the liability protection of a corporation. This is one of the most popular structures for small businesses.
- Corporation (C Corp or S Corp): This structure separates you from the business legally, but it’s more complicated to set up and comes with more regulations. Great for bigger businesses that want to attract investors.

Pro Tip: If you’re unsure which one to choose, it’s worth speaking to a lawyer or accountant to see what’s best for your specific situation.

2. Register Your Business Name

Once you’ve chosen a structure, you’ll need to pick a business name and register it. This ensures that no one else can operate under the same name in your area. Depending on your business structure, you’ll register the name in different ways:

- Sole Proprietors can register their business name with their state or county. Often, this is called filing a “Doing Business As” (DBA) or “fictitious name” registration.
- LLCs and Corporations need to check if the business name is available in the state and then officially register it when filing the business with the state.

Also, don’t forget to check for domain name availability if you plan to create a website!

3. Get an Employer Identification Number (EIN)

Next up, you’ll need an Employer Identification Number (EIN) from the IRS. Think of it as a Social Security number for your business. It’s required if you plan to hire employees, but even if you don’t, it’s often a good idea to get one. You’ll need it for tax purposes and to open a business bank account.

Good news—it’s easy and free to apply for an EIN on the IRS website.

4. Register for State and Local Taxes

Depending on where you’re located and what kind of business you’re running, you may also need to register for state and local taxes. For example:
- Sales tax: If you’re selling physical products (and sometimes services), many states require you to collect sales tax. This means you need to register for a sales tax permit.
- Employment taxes: If you’re hiring employees, you’ll need to register for payroll taxes, like unemployment insurance and workers' compensation.
- Local Business Taxes: Some cities or counties may require you to pay additional business taxes, so check with your local government office.

5. Obtain Business Licenses and Permits

The licenses and permits you’ll need depend on what type of business you’re starting and where you’re located. Here are some examples:

- General Business License: Many cities require businesses to get a general business license just to operate. Check with your local city or county government to see if this applies to you.
- Health Department Permits: If you’re opening a restaurant or any food-related business, you’ll need permits from the health department.
- Professional Licenses: Certain professions (like real estate agents, barbers, or therapists) require state-issued licenses to operate legally.
- Home-Based Business Permit: If you’re running your business from home, your local government might require you to get a home occupation permit.

Research what permits apply to your business or contact your local Small Business Administration (SBA) office for help.

6. Protect Your Intellectual Property

If you’ve created something unique, like a product, logo, or even a slogan, you might want to protect it legally. Here’s how:

- Trademark: This protects your business name, logo, or slogan from being used by others. You can apply for a trademark through the U.S. Patent and Trademark Office (USPTO).
- Copyright: If your business involves original works like books, art, music, or software, you can copyright it to protect it from being copied or used without your permission.
- Patents: If you’ve invented something unique, applying for a patent will protect it from being manufactured or sold by others for a set period.

These protections might not be necessary for every business, but if you think someone could steal your ideas, it’s something to consider.

7. Open a Business Bank Account

Once your business is officially registered and you have your EIN, the next step is to open a separate business bank account. Mixing personal and business finances can get messy (and even legally risky), so it’s important to keep them separate.

A business bank account allows you to:
- Keep better track of income and expenses.
- Simplify your tax filings.
- Build a financial history for your business, which helps with future loans or investment opportunities.

8. Get Business Insurance

Even if your business is small, insurance can be a lifesaver. Different types of insurance can protect you from financial loss due to lawsuits, property damage, or accidents. Some types to consider include:
- General Liability Insurance: Covers things like customer injuries on your property or damage caused by your business.
- Professional Liability Insurance: Protects against claims related to professional services (think doctors, lawyers, consultants).
- Workers’ Compensation Insurance: Required in most states if you have employees; it covers workplace injuries.
- Property Insurance: Covers damage to your business property due to theft, fire, or other disasters.

Check with an insurance broker to see what type of coverage is right for your business.

9. Follow Employment Laws

If you plan to hire employees, make sure you’re aware of federal and state employment laws. Some key things to remember:
- Worker Classification: Make sure you know whether you’re hiring employees or independent contractors, as they’re treated differently for tax and legal purposes.
- Wage Laws: Ensure you’re complying with minimum wage, overtime, and other pay-related laws in your state.
- Anti-Discrimination Laws: Be familiar with laws related to fair hiring practices to avoid any legal issues.

Check with the Department of Labor or your state labor office for guidance.

10. Keep Good Records

Finally, keeping accurate records of your business activities is essential for taxes, tracking profits, and staying organized. This includes:
- Income and expenses (keep receipts!).
- Employee records (if applicable).
- Tax filings and correspondence with the IRS.
- Legal documents like permits, contracts, and insurance policies.

Good record-keeping helps keep you compliant and ready for tax season without scrambling last minute.

Conclusion

Starting a small business might seem overwhelming with all the legal requirements, but taking it step by step makes it manageable. Choose the right business structure, register your name, get your EIN, and make sure you’re properly licensed and insured. Once you’ve handled the legal aspects, you can focus on growing your business and making it a success!

Don’t hesitate to seek help from a lawyer, accountant, or local business resources if you’re unsure about any part of the process. It’s better to invest the time and effort up front than to deal with legal issues down the road.