Starting a business begins with planning. This post looks at the legal aspects of how to establish a business. Topics include: business legal structure, how to start a corporation, licenses and permits, determining applicable business laws, taxes, labor and employment law, copyright and trademark, and special certifications such as MWBE. These topics will be briefly touched on from the perspective of an entrepreneur looking to squeeze costs and enhance advantages at the outset instead of waiting for issues down the line. For help setting up a business, claim your business lawyer free consultation.
Legal Structure or How to Start a Corporation
For most business owners and attorneys, legal structure comes down to choosing between a corporation, a limited liability company (LLC), or a sole proprietorship. The key goals are: (i) putting a wall between your personal legal situation and the legal situation of the business; and (ii) optimizing your relationship with other business stakeholders including partners, investors, employees, vendors and customers. A sole proprietorship is basically you, without any partners, opening your doors for business without creating an entity. Because sole proprietorships do not provide any protection from external liability, business lawyers do not recommend this approach. The choice usually comes down to either creating an LLC or starting a corporation. For more on this choice, read Incorporating a Small Business.
Starting a corporation, from a basic nuts-and-bolts level, can be approached as who, where, and what. Who will be the shareholders (stockholders) and the directors? Where will the corporation be formed meaning, in which U.S. state will the corporation be registered? What will be the initial inner workings of the corporation, the amount of authorized stock, or special designations or requirements listed in the certificate of incorporation? To some extent, the answer to any one of these questions may impact the way you approach one or more of the other questions.
The next step in this brief start a corporation how to is setting up a business name. You probably have one or more names in mind. The question is whether your ideal name is available. To check, visit the website of the agency responsible for registering corporations in the State that you've chosen. Usually a search for the State's division of corporations, or secretary of state, or department of state, will bring you to the correct page. The website should have an option allowing you to search currently registered entities, or to search name availability. Many states provide an entity search as a free service, but some may charge to search name availability. You'll also have the option to reserve a name, an option most States charge a fee for. Setting up a business name then becomes a matter of searching corporation names until you find names that are available.
Final steps in starting a corporation include opening or registering the corporation. Many States now allow for online registration of corporations. If you've answered the above questions, you may be able to go forward with registering your corporation using the online interface. Because you will be charged a fee, and your actions will result in the creation of a legal entity with legal duties and responsibilities, if you have any questions hold off on registering your corporation until they are answered. Once you've registered your corporation, Congrats! You've learned how to start a corporation and you're on your way to starting your business. You'll next need to draft bylaws, hold your initial meeting, elect directors, and appoint executives. Learn about Board of Director Duties. For help starting a business, claim your business lawyer free consultation.
Starting a Business - Licenses and Permits
Possibly before starting a corporation, or even setting up a business name, you may need to look into whether your business requires one or more licenses or permits. Thankfully, this research is becoming easier and easier every day. For example, the City of New York has a business portal that provides and easy way to search regulations by industry at the Local, State and Federal level. Visit nyc.gov and search "Find a Business Regulation" or click the following link https://www1.nyc.gov/nycbusiness/index. The results of your license and permit research may impact whether you need help setting up a business. You may also find that starting a corporation in one State may change license and permit requirements at the State and local level. If you need help, claim your business lawyer free consultation.
Starting a Business - Determining Applicable Business Laws
As you research whether your business will need to apply for permits and/or licenses, you will begin to get a better idea about some of the laws and regulations that specifically apply to the business you are starting. Some laws and regulations apply to most or maybe all businesses in a particular city, state or country, but at this point you will be looking to focus in on the laws and regulations that are cover your type of business in particular. You may need to talk to other business owners, visit agency websites, make phone calls, personal visits, etc. Depending on the level and rigor of regulation, it may make sense for you to engage legal counsel early in the process.
Starting a Business - Taxes
If you've worked your way through the above start a corporation how to, you should now be ready for basic corporate tax registration. The corporation that you've formed is recognized as a legal person, separate and distinct from you and your shareholders. Just like you have a tax ID, your social security number, your corporation must also have a tax ID. The corporation's tax ID is known as an Employer Identification Number or EIN. The government uses the EIN for tax purposes, but the EIN is also important for banking and other verification purposes. If the business you're starting is relatively straightforward, you should be able to apply for an EIN on your own. Visit irs.gov and search "EIN" or follow this link to Apply for an EIN online. You may also need to register at the state and/or local level to pay taxes including sales tax, excises, and/or franchise tax. Your state/local tax registrations may be completed automatically when you start your corporation, but you may need to take additional steps depending on the jurisdiction of incorporation and your business's industry.
Starting a Business - Labor and Employment
One of the reasons that you start a corporation is to provide a balanced way to enjoy the benefits of employing others while protecting yourself from undue liability. Labor and employment law and regulation is a complex area with many Federal, State and local overlays. Depending on where you start your corporation, where you locate your business, and where your employees are live, work and/or are located, labor and employment laws and regulations will impact your business. Starting a business requires that you investigate your particular situation. Some of the big topics of discussion are how to distinguish between employees and third-party contractors, whether your business is in an at-will employment state (employees can be terminated at-will unless subject to contract), and "global" laws/regulations such as health, anti-discrimination and minimum-wage laws. What you learn may influence where you start your business, or even whether you start a particular type of business, so do your research. The U.S. Department of Labor's Employment Law Guide may be a good start.
Starting a Business - Copyright and Trademark
Above, in the start a corporation how to, we looked at setting up a business name and the process of finding a relatively unique name for your corporation. This name finding process is probably tied into your efforts to distinguish your business in the marketplace, i.e. your branding. Depending on your business and/or the investment you've made into your brand, it may make sense for you to protect your brand by applying for a trademark. If you are starting a business that transacts in intellectual property such as film, musical compositions, art, literature, scientific works, programs or algorithms, protections such as registered copyright or patents may be appropriate. You will need to look at this on a case-by-case basis so that you can make the best determination. Because the decisions you make in this area may have a significant impact, it may make sense for you to research these issues as you begin starting your business rather than waiting. For copyright, to learn more visit the U.S. Copyright Office. For patent and trademark, visit the U.S. Patent and Trademark Office.
Starting a Business - Special Certifications (MWBE)
Some businesses qualify for certifications that may be important to you as you research starting a business. Some U.S. Veterans qualify for set-asides and sole source contracts. Another big special certification program is the Minority and Women-owned Business Enterprise (MWBE) program. The certification program for veterans is a very specific program run through the U.S. Veterans Administration. The MWBE certification is more general and can be found at the federal, state and local level. For example, each of New York City and New York State has an MWBE certification program, as well as the federal MWBE program. If you qualify for one or more of these special certifications, your business may be able to benefit directly by taking advantage of preferences when bidding for government contracts. You may also be able to take advantage indirectly by partnering with other businesses. For example, if you qualify for certification and become certified, you may be able to partner with a non-certified business that is bidding on one or more contracts that include set-aside goals or requirements. If you are starting a business that cannot be certified, you can find ways to become certified, or find ways to leverage partnerships with businesses that are already certified or are eligible to become certified. Visit NYC.gov and search "MWBE" to get a feel for requirements, timing, application process, etc.