Starting a business is not a difficult task. In fact, the bulk of the preparation can be completed in almost no time at all. However, when forming an LLC (or any business structure), there are some definite legal tasks that need to be completed and prioritized. Let's face it: the majority of entrepreneurs are not up to speed on business law. And for that reason, it’s imperative to find a good business lawyer or service provider to work with as you complete these critical tasks.
Of course, you could always do your own research and complete these tasks yourself...but it’s in your best interest to get help. Why? Because a professional will make the process go much more smoothly and ensure it’s done correctly up front. The last thing you want is to discover something incorrect regarding the legal status of your business and need to go back and correct things later. In the long run, you’ll save more money by asking for help than potentially paying fines or fees later for your mistakes (on top of the need to hire a business attorney at that point!).
So, what legal tasks should you be concerned with before starting your business?
1. Business Name Search
If you don’t want your business to end before it even begins, then you need to do your homework on what you’d like your business name to be. Does someone else legally own the rights to this name? If an existing business already has the name, you’ll be up a creek without a paddle if you try to use it. For this task, you can start by looking up business names with the Incfile Business Name Search Tool to see if your name is available.
In addition, if you live in Pennsylvania and you were thinking about using the business name “Weik Fitness,” you could go to Google and look for “business entity search in Pennsylvania.” From there you’d type in “Weik Fitness,” and you’d see that my personal business comes up and is using that name. That would give you enough information to know you can’t use that name and would have to think of something different.
However, if the name you search for doesn’t come up, that doesn't necessarily mean you're in the clear (even though it appears not to be used in your state). You can also use Incfile's Business Name Generator to help spark some ideas.
The next best thing to do would be to ensure someone hasn’t trademarked the name nationally. Once you find the perfect name, head over to Incfile's Trademark Name Search service if you want help finding a unique name and then registering it for yourself.
2. Form Your LLC
Once you've settled on a unique name, it’s time to form your LLC. You went through the process of making sure your name isn’t taken, and now it’s your time to turn your dreams into a reality. You can complete the paperwork to file on your own, have a business attorney handle it for you or use an online site like Incfile. Personally, I think setting up your business with incorrect paperwork would be a nightmare, and it can cause you to waste a lot of time becoming frustrated and stressed. Instead, use a reputable website to guide you in setting up your business, or let a business attorney handle this portion for you.
3. Register a Fictitious Business Name or DBA
If you plan on doing business under another name, you’re going to need to file a fictitious business name or DBA (doing business as) in your state and/or county. For example, if your business is Kitten Kare, LLC, but you'd also like to create a business called Kate’s Kitten Kennel, you would need to file that name as well. So, legally the name would be Kitten Kare, LLC (dba Kate’s Kitten Kennel).
Forming separate businesses without a DBA will throw up red flags and can get you into some legal ramifications if you don’t obey the laws.
4. Get your Federal Tax ID Number or EIN
The next task to complete is to file for your Federal Tax ID Number or EIN (employer identification number). This is free and can be completed online. Your EIN is issued by the IRS and serves as your “social security number” for your business. From a legal standpoint, this number separates you personally from the business. It also allows you added protection so you aren’t giving out your social security number for business purposes.
To learn more about this step or get professional help, read more about Incfile's EIN service, which saves time by assisting you with the required paperwork.
5. Learn and Understand Employee Laws
If you are the only member of your business, you can bypass this task. However, if you are planning on hiring employees, this is a very important step. Having a business attorney to help guide you through this step can ease the process and give you a full understanding of what needs to take place.
Once you hire your very first employee, this task will need to be implemented immediately. There will be no neon signs telling you to pay attention or a phone call saying you better understand employee laws, either — this is something that comes with the territory of owning a business and employing others.
Things you need to understand include:
Do NOT bypass this step thinking you’ll be able to wing it as you go! Not understanding these laws and procedures can land you in legal trouble — and could potentially put you out of business.
6. Apply for Business Permits and Licenses
Depending on where you live and the type of business you run, you might need to apply for business permits and licenses. You can search for this information on your own by reaching out to the correct parties within your state and county (as well as federal), or you can work with a business attorney who can handle that for you and file for any business permits and/or licenses you may need. Another great option is using Incfile's Business License Research Package, which will identify what licenses and permits you need, as well as provide guidelines for applying correctly.
Some common business permits and licenses include:
- General business license
- Sales tax license (if you are selling goods)
- Occupational and professional licenses
- Zoning and land use permits
- Health department permits
- ...many others depending on your industry and location!
7. Open a Dedicated Bank Account for the Business
Last but certainly not least, you should head to the bank and open a dedicated account for your business. Finances can get a little interesting if you have a personal checking account that you also use for business purposes. The IRS prefers that you separate church and state, so to speak. At tax time, you don’t want funds intermingling and leaving any uncertainty as to which money came from where. The last thing you want is to be audited and need to explain where every other penny came from!
Setting up a dedicated business bank account also allows you to build your own business credit if you ever need to take out a loan to expand your business. Finally, it makes tracking receivables and payables much easier via your bank statements, since everything will be in one place.
Once you have all of the above taken care of, you’ll be in great shape from a legal standpoint. Now, the next thing to do is to figure out how to get more clients and grow your business!