Raise your hand if you procrastinate when it comes to some aspects of your business. In business, like in life, there are going to be parts you love, and parts you’d rather sweep under the rug for a while. More often than not, the legal aspects of running a business are pushed aside as you focus on serving your customers and making money.
While the legal fine print may not be the most glamorous or exciting part of your business, it can be absolutely critical to the success of your business, and the safety of your personal savings.
Here's a Quick Rundown of the Legal Considerations for Your Small Business:
1. Make Sure You're Allowed to Use Your Business Name
Your name is the foundation of your business. It shapes branding and customer perceptions. You may have thought of the best name for your business, but is it legal? You need to make sure your business name is not infringing on the rights of an already existing business. For example, calling yourself ‘McDonald's' won't work; choosing the name ‘McDowells' should be okay unless you're going into the restaurant/food business. In most cases, you don't need an attorney for this task, as you can perform a free business name search that looks at business names registered with the secretary of state. It’s also smart to conduct a trademark search to see if your name is available for use in all 50 states.
2. Register your Fictitious Business Name (aka “Doing Business As”, DBA)
You’ve most likely passed over thousands of fictitious business name filings in the classifieds of your local paper. If you have a sole proprietorship or general partnership, a DBA registration must be filed when your company name is different than your own name.
For an LLC or corporation, a DBA must be filed under the Corporation or LLC whenever you conduct business using a name that's different than your Corporation or LLC name – i.e. if CorpNet, Inc. is doing business as CorpNet.com or CorpNet, then DBA’s need to be filed by CorpNet, Inc. doing business as “CorpNet.com or CorpNet”.
3. Incorporate or Form an LLC
As I mentioned in my previous post, forming an LLC or corporation is an essential step to protecting your personal assets (such as your personal property or your child’s college fund) from any liabilities of the company. Depending on your specific circumstances, you might choose between an LLC (great for small businesses that want legal protection, but with minimal formality) and an S Corporation (great for small businesses that can qualify).
In light of how easy and inexpensive it is these days to legalize your business online unless your business is particularly complex, you should be able to incorporate your business or form an LLC online quickly and affordably, without having to retain a business attorney.
4. Get a Federal Tax ID Number (a.k.a an “EIN” or “Employer Identification Number”)
To distinguish your business as a separate legal entity, you'll need to obtain a Federal Tax Identification Number, also referred to as an Employer Identification Number. Issued by the IRS, the tax ID number is similar to your personal social security number and allows the IRS to track a company's transactions. You’re not obligated to get a Tax ID number if you’re a sole proprietor, but it’s still good practice as you won’t have to provide your personal social security number for business matters.
5. File for Trademark Protection
Using a name automatically gives you common law rights as an owner, even without formally registering a trademark. However, you should still consider registering your trademark for proper legal protection — after all, you've spent untold hours brainstorming the ideal name, and you'll be putting even more effort into cultivating brand recognition. A trademark can help ensure that no one else uses your business name and confuses your customers.
6. Brush up on Employee Laws
Do you have any employees today? Or are you considering your first hire? Your legal obligations as an employer begin as soon as you hire that first employee. I advise spending time with an employment law professional to fully understand your obligations in such areas as federal and state payroll and withholding taxes, self-employment taxes, anti-discrimination laws, OSHA regulations, unemployment insurance, workers' compensation rules, wage and hour requirements, among others.
7. Obtain Business Licenses and Permits
Depending on your business type, you may be required to file for one or more business licenses or permits from the state, local (city and county) or even federal level. Such licenses include: a general business operation license, zoning, and land use permits, sales tax license, health department permits, and occupational or professional licenses.
Set aside some time to address these matters and take your legal obligations seriously. Depending on your type of business, hiring a tax accountant and/or good attorney with specific experience in your industry can go a long way to helping you steer clear of trouble. However, you choose to cross some of these tasks off your list, make sure to pat yourself on the back for taking this important step for your business and your finances.
Did we miss any important legal considerations? Drop us a note; we'd love to hear from you!