Starting a new business is so thrilling that it is easy to be embroiled in the excitement and forget to carry out due diligence. According to experts, one of the reasons startups fail within the first five years is for not meeting the legal requirements. After writing down your business plan or structure, you must get acquainted with the legal requirements needed to run or operate a successful business. Let’s discuss some of the key legal prerequisites before starting a business.
Register your business name
Determining your business structure doesn’t stop at that; you will also need to register it. Registering your business gives you a unique identity and helps you attract customers. When you think about it, no one likes to do business with an unregistered entity for safety reasons. The other good thing about registering your business is that you are protected from personal liability. Generally, it is easy to grow with a registered entity since you can also get bank credit and investment from investors.
Determine your business structure
The first step of starting a business is understanding the different structures in your state. For instance, will you register your business as an LLC or a sole proprietorship? This decision not only impacts how much you pay in taxes but also determines the personal liability you face, and your ability to raise money. It is essential as an entrepreneur to seek expert advice from business professionals when considering the pros and cons of the various entities.
Key factors to consider include;
- Tax implications
- Legal obligations
- The cost of formation and administration
- Future needs- what happens if you want to sell the business?
- Flexibility of the ownership structure
Many startups find themselves victims of tax audits, fines, and penalties from the taxman. Sadly, some of these mistakes happen because of not being aware of your tax obligations as an entrepreneur. Before you start your new venture, try to find out about the tax requirement in your state. Understand your business structure to know how to file and pay for your taxes. It is prudent to hire a tax attorney for guidance to avoid issues with the taxman. Don’t wait for problems to occur. Ensure you work with a competent attorney right from the start of business.
Apply for a federal tax ID number
As an entrepreneur, you are obliged to get an employer identification number (EIN) to help identify your business and individuals for tax purposes. It is important because it allows you to legally hire employees, pay federal taxes, apply for business licenses, and open a business bank account. It will also help you get a tax-deferred pension plan.
Obtain all the necessary permits and licenses
Imagine if everyone was allowed to carry out their business activities without being licensed to do so? Chaotic, right? Licenses are a government requirement to achieve different purposes. It helps to identify your business and make sure you are accountable for your actions. It also protects the public and keeps track of your finances for tax purposes. Some common licenses to look out for include fire department permit, county permits, federal licenses, health department permits, sales tax license, etc.
Insurance is usually one of the last things when getting into a new venture. However, it is very important to get one to safeguard you, your business, and your employees against liabilities and losses. You need to be covered by business insurance while you work towards developing scalable models and work towards becoming a fully pledge company. With an insurance policy, you keep, you will attract investors and keep your employees happy.
Common insurance to look at includes.
- General liability insurance
- Property insurance
- Workers compensation insurance
- Errors and omission insurance
- Management and professional liability
We have talked of tax attorneys and we can’t emphasize the essence of hiring professionals enough. It is easy to miss out on so many legal details, reports, and forms of paperwork. Since you are juggling other business needs, you must seek expert advice from different professionals to ensure you get started on the right track. Have a sit down with professionals to ensure you are covered from a legal and financial standpoint before getting into the business.
The measures we have discussed above might seem a lot, especially when you are starting out. While it might be the case, you also need to ensure you carry them out to be on the safe side of the law. It is also the only way to enjoy and thrive in any business.