2 in 5 Americans plan to start a business in 2023, with business, retail, tech, and finance some of the most popular sectors to launch in. Although starting a new business is an exciting endeavor, it’s also challenging. In addition to standing out from the competition and growing a loyal customer base, you also have to take legal implications into account. Keeping on the right side of the law will ensure you steer clear of fines, lawsuits, or even jail time. By staying on top of your legal obligations, you can successfully ensure your business gets off on the right foot.
Choose the right business entity
Your choice of business entity or structure influences a myriad of elements across your entire business, which makes it all-important to choose the one that’s the right fit for your needs. In particular, your business structure impacts how much you’re taxed and how much you’re able to raise in capital funds, as well as how much paperwork you have to deal with. Moreover, legal structure can also affect your personal liability – meaning whether or not you’re personally held responsible for your business’s debts.
Limited liability companies (LLCs) are one of the most popular legal structures for small businesses in the U.S. – of which around 35% are LLCs, while 33% are S corporations, 19% corporations, 12% sole proprietorships, and 2% partnerships. Indeed, since sole proprietorships or partnerships are quicker to establish and don’t involve excessive paperwork, these structures can be a sensible choice when you’re first launching your business. However, as your operations grow, liability protection will naturally be an increasing concern, and you’ll therefore need to switch-up your choice of legal structure accordingly. Unlike with a sole proprietorship, an LLC provides you with liability protection, which means your personal assets are kept separate from your business assets. If your business goes bankrupt, your personal assets therefore remain protected.
Although LLC formation can be a complicated process, professional services are fortunately on-hand to take care of the task for you. For example, LegalZoom provides a number of LLC formation packages. The most basic package – the economy package – files your state LLC documents within 30 days. Legalzoom LLC cost is also very affordable, with the economy package, in particular, priced at $79 (plus state fees). Alternatively, ZenBusiness offers three different customizable packages starting from $49. Although turnaround time depends on your state, ZenBusiness’ standard filing speed is around two to three weeks.
Register your name and trademarks
After selecting a business structure, you’ll need to choose a business name – which then also needs to be filed with the state. According to the Small Business Administration, an entity name “protects the name of your business at the state level”. This essentially means, when you register a legal entity name, everyone else in your state is legally prevented from operating under your same business name.
It’s also important to trademark your name to prevent other businesses from using it in all other states. Keep in mind, you don’t have to wait until your business is well-established to do this. In fact, it’s better to apply for a federally-registered trademark sooner rather than later. Trademarks can help ensure your brand remains one-of-a-kind and prevents others from stealing or misusing your name as you grow. Choosing to delay trademark registration can also end up being a huge financial mistake – for example, if another business with the same name as you gets there first, you’ll then be forced to change the name of your business, resulting in a potentially costly rebrand. On top of protecting your business name, trademarks can also be filed for logos, slogans, and catchphrases, along with any other phrases associated with your business. You can expect to pay around $250-$300 to trademark your business name, although the exact cost varies from state to state.
Obtain relevant licenses, permits, and registrations
Depending on the nature of your business and your location, you may need to obtain certain licenses, permits, and registrations. The Small Business Administration provides information on necessary federal business licenses and permits for each industry, while you’ll also need to research what you may need at the state level (your city or county’s business licensing agency can provide you with further information). For example, you may need a building permit, liquor license, local business license, and/or health and safety permits. Above all, it’s important to be clear on your individual needs to ensure you remain compliant with the relevant laws.
Taking care of your legal responsibilities is a key part of launching a new business. By choosing the right business entity, registering your name and trademarks, and obtaining licenses, permits, and registrations, you can set your new business up for best chances of success.