There are plenty of benefits to starting your own business. By being your own boss, you can create your own schedule that allows you to spend more time with family and friends and work in an industry you are truly passionate about. However, if you rush into running a business without doing the proper legal legwork first, you could find yourself in a mess. Take these steps to ensure your business is operating legally and prevent future headaches.
Choose the Right Business Structure
Businesses are divided into three different structures, each with its own advantages and disadvantages. The sole proprietorship is the easiest to set up and affordable to maintain, but it does not offer any legal protection of tax benefits. S corporations provide asset protection and tax benefits, but often come with a heavy paperwork load and ongoing fees. Finally, limited liability companies are easier to manage and offer asset protection, but are not always eligible for tax breaks.
You must consider a few situations when deciding which type of company is best for your business. Think about your personal tax circumstances, how much financing you have available to start your business and how much of that financing you’re willing to spend on registering the business structure, how much paperwork is involved on a yearly basis, and what the tax benefits versus liabilities are. Most people choose to consult a business lawyer and tax professional for this stage.
Register Your Business Name
If you are a sole proprietor who is working under your own legal name, you do not need to complete this step. However, if you intend to operate your business under a new name, you must register it with the proper agencies. Begin by searching online and in state and federal trademark databases to ensure the name you chose isn’t already in use. If it isn’t, you can then submit a formal application to use the name. In some cases, a lawyer who is knowledgeable in patent and trademark laws is an asset for this stage of the process.
Secure Licenses and Permits
Nearly every business must have some kind of permit or license to operate. At the very least, most states require a general business license. Depending on the type of business you run, you may also need an occupational work license or another type of permit in your state. If you intend to sell firearms, tobacco, or alcohol, you will need a valid federal license or permit to operate.
Set Up Your Taxes
Anyone who owns a business must file and pay business income taxes. If you run something other than a sole proprietorship, you can expect to pay taxes based on your net profit. Businesses are required to pay estimated taxes every quarter. If you run a sole proprietorship, you must pay self-employment taxes. Don’t forget to obtain a sales tax certificate if one is required in your area.
Get the Proper Insurance
Even if your state does not require businesses to carry insurance, it is a good idea to do so. This ensures you are legally protected in the event of property damage, theft, or if someone is injured or dies on your property. Insurance is also available for several other situations.
Keep in mind you will need more comprehensive insurance if you have employees, and the more you have, the more insurance you need. For example, hampton creek has more than 100 employees, so it needs a larger amount of insurance than a company that only has 10 or 20 employees. Exactly what you need will depend on your industry, but an agent who specializes in business insurance can help you determine which package is right for you.
If your business takes off, you will likely need to hire help. The first step is to contact the IRS to obtain an employee identification number. You must pay minimum wages based on your city or state laws. Depending on the type of business you run and how many employees you have, you may also need to carry health insurance, workers’ compensation insurance, or other types of coverage.
By following the proper legal procedures, you are more likely to have a successful business. You will be able to do what you love and stop clocking in at an office every morning, leaving you free to work your schedule around other things that are important to you.