Man in small office preparing to ship a package; image by Bench Accounting, via Unsplash.com.
How to Legally Start a New Small Business

Consumer protection laws require you to keep an official register of your business.


It seems like everyone is starting a home business these days, and it looks like the trend will continue. However, twenty percent of startups don’t last a year due to poor planning. Some companies are not even legally incorporated. We’ll tell you what you need to do to start a legal, well-planned home business.

Do preliminary planning

During the planning stage, you may need to do some market research to find out if your business idea is a good one. You will need to come up with a business name that is unique, relevant, positive, short, and easy to spell. If you are not doing business solely online, you will need to determine the optimal location for your business after considering many possible details that the location would affect. If you plan to secure a business loan, attract investment capital, or attract strategic business partners, you will need to write a formal business plan. The Small Business Administration can help you write it.

Create your business legally

You will need to decide on a legal structure for your brand new business. Will your business be a sole proprietorship, LLC, partnership, C corporation, S corporation, B corporation, private corporation, cooperative, or non-profit corporation? This choice affects your taxes, personal liability, and business registration requirements. The choice to be a sole proprietor is common for one-person businesses, however, the right choice for 80% of small businesses is a limited liability company (LLC). An LLC type of entity would limit your liability for business debts because it legally separates the owner’s personal assets from the business assets.

You will need to register your business with your local, state and federal governments. The rules on this vary from state to state. If certain conditions apply to your future business, you may need to apply for an Employer Identification Number (EIN) on the IRS website before proceeding to the next step in the process. Some people argue that all businesses need an EIN even if the business has no employees.

Consumer protection laws require you to keep an official register of your business. Therefore, if your business will be a sole proprietorship, you will need to file a notarized Doing Business As (dba) certificate with your county courthouse and state business registration department. When you go to a bank to open a business current account, you must have your dba (or business registration form) with you.

You will want to register your business with your state to ensure that other people will not use your business name. You will also want to hire someone to register your trademark with the United States Patent and Trademark Office. This will protect your brand identity from theft, as your dba registration only protects you from intellectual property theft within your state and industry. Register your web domain name so that only you can own the web address you created. Domain name registration also helps potential customers find your business.

Depending on the type of business you will be running, you may also need to obtain special licenses and permits. Particular products and services would require you to collect and pay sales taxes to your local and state governments. Many other taxes may also apply to your business. Do your research and do what is necessary.

Dealing with finances

Photo by Bench Accounting at Unsplash.com
Photo by Bench Accounting at Unsplash.com

You must open a business current account before borrowing money. Remember to bring your dba or business registration form with you to the bank. Keep your personal finances in a personal checking account and record the checks you write to yourself from the business account as “Owner’s Draw”. With a checking account dedicated to your business, you and the IRS can easily track your profits and expenses. Your business account will likely have access to far more credit than you could get personally or with your transactions mixed with those of your business. A separate business account would also help protect your personal assets from certain liability risks.

A home business can give you control over your financial future, as well as your personal time. Create your business legally to avoid penalties. Take the extra steps to protect your business and personal finances. A well thought out and executed home business can give you the kind of money you desire.

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