Starting a business is exciting, but the legal steps can seem confusing. The good news? You don’t need expensive lawyers to do this right. With clear guidance, you can set up your business legally and affordably.
This guide covers the essential legal steps every new business owner needs to take. Whether you’re starting a side business or building something bigger, these steps will help you avoid costly mistakes.
Table of contents
- Step 1: Choose Your Business Structure
- Step 2: Register Your Business Name
- Step 3: Get Your EIN Number
- Step 4: Register for Taxes
- Step 5: Get Licenses and Permits
- Step 6: Open a Business Bank Account
- Step 7: Create Important Documents
- Step 8: Stay Compliant
- Step 9: Get Business Insurance
- Step 10: Choose a Registered Agent
- Common Mistakes to Avoid
- Affordable Resources
- Conclusion: Completing these legal steps for starting a business build a strong foundation
Step 1: Choose Your Business Structure
This is one of your most important decisions. Your business structure affects your taxes and protects (or doesn’t protect) your personal belongings.
| Business Structure | What does this mean |
|---|---|
| Sole Proprietorship | The simplest option. You and your business are the same legally. Easy to start, but risky—your personal belongings aren’t protected if your business has problems. |
| LLC (Limited Liability Company) | The most popular choice. An LLC protects your personal assets from business debts. It’s simple to set up and offers great protection. |
| Corporation | Best for businesses that want investors or plan to grow very large. More complicated and has more rules to follow. |
For most people, an LLC is the best choice. It protects your personal belongings while staying simple to manage.
Step 2: Register Your Business Name
Your business name needs legal registration. Here’s how:
- Check if the name is available in your state’s business registry
- Search the trademark database to avoid legal problems
- File a DBA (“Doing Business As”) if your business name is different from your legal name
- Buy your website domain to match your business name
This protects your brand and makes sure you’re not using someone else’s name.
Step 3: Get Your EIN Number
An EIN (Employer Identification Number) is like a social security number for your business. The IRS uses it to identify your business.
You need an EIN to:
- Open a business bank account
- Hire employees
- File business taxes
- Apply for licenses
The best part? It’s free and takes only minutes on the IRS website. Don’t pay companies to do this for you—it’s easy to do yourself.
Step 4: Register for Taxes
You’ll need to register for different taxes depending on your business:
- State Income Tax: Most states require this registration.
- Sales Tax: If you sell products, you need to collect sales tax. Register for a sales tax permit in your state.
- Payroll Taxes: If you hire employees, register for unemployment and withholding taxes before your first paycheck.
Legal steps for starting a business may vary state ion different states. Check your state’s website to learn what you need.
Step 5: Get Licenses and Permits
Many businesses need special permission to operate legally.
- General Business License: Most cities require this. Check with your city hall.
- Professional Licenses: Doctors, lawyers, contractors, and many other professionals need special licenses.
- Industry Permits: Restaurants need health permits. Stores need resale certificates. Home businesses might need zoning permits.
The Small Business Administration website has a free tool to find what licenses you need. Just enter your location and business type.
Step 6: Open a Business Bank Account
Keep your personal and business money separate. This is very important.
Why this matters: If you mix personal and business money, you could lose your legal protection. Courts might treat your business and personal finances as the same thing.
What you’ll need:
- Your EIN
- Business formation papers
- Personal ID
Choose a bank with low fees and good online services.
Step 7: Create Important Documents
Every business needs basic legal paperwork.
- Operating Agreement (for LLCs): This document explains who owns what, how profits are shared, and how big decisions are made. Even if you’re the only owner, this document strengthens your legal protection.
- Contracts: Create agreements for clients, vendors, and employees. Written contracts prevent misunderstandings and protect everyone.
You can use online templates for most documents. They’re affordable and work well for standard situations.
Step 8: Stay Compliant
Setting up your business is just the start. You need to keep up with ongoing requirements.
- Annual Reports: Most states require yearly reports and fees. Missing deadlines can shut down your business.
- Tax Deadlines: File your taxes on time. Depending on your business, you might file quarterly or yearly.
- License Renewals: Many licenses need renewal every year or two. Mark these dates on your calendar.
- Keep Good Records: Save all receipts, contracts, and official documents. Good records help with taxes and protect you if problems come up.
Step 9: Get Business Insurance
Insurance protects your business from unexpected problems.
- General Liability Insurance: Covers accidents and injuries. Many clients require this.
- Professional Liability Insurance: Protects consultants and advisors from claims about their work.
- Workers’ Compensation: Required by law if you have employees. Covers work injuries.
Shop around and compare prices. Many online services make this easy.
Step 10: Choose a Registered Agent
Every LLC and corporation needs a registered agent. This person receives legal mail and official documents for your business.
Requirements:
- Must have a real address (not a P.O. box) in your state
- Must be available during business hours
You can be your own agent, but many people hire professional services. They cost $100-300 per year and keep your home address private.
Common Mistakes to Avoid
- Don’t skip the LLC: Operating without an LLC leaves your personal belongings at risk.
- Don’t mix money: Keep business and personal finances completely separate.
- Don’t work without contracts: Always get agreements in writing, even with friends. More information can be found under our contracts section.
- Don’t miss deadlines: Late tax filings create expensive penalties.
- Don’t ignore updates: When your business changes, update your legal documents.
Affordable Resources
- Online Legal Services: Companies like LegalZoom and Incfile handle business formation at low costs.
- State Websites: Your Secretary of State website has free guides and forms.
- Small Business Administration: Free resources, guides, and mentors.
- When to Hire a Lawyer: Consider professional help for complex partnerships, highly regulated industries, or big contracts.
Conclusion: Completing these legal steps for starting a business build a strong foundation
Starting a business legally doesn’t have to be hard or expensive. Follow these steps to protect yourself and set up your business right:
- Choose your business structure (LLC for most people)
- Register your business name
- Get your EIN
- Register for taxes
- Obtain required licenses
- Open a business bank account
- Create essential documents
- Plan for ongoing compliance
- Get insurance
- Set up a registered agent
These legal steps protect your personal belongings, make your business legitimate, and prevent problems later. Take time to get these basics right so you can focus on growing your business.
Don’t let legal concerns stop you from starting your business. With today’s affordable resources, you can handle these steps yourself and build something great.
Ready to start? Choose your business structure today and take the first step toward making your business dream real.
