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Legal Requirements: Minding the Details
Prompt attention to legal details intrinsic to a new business launch can save major headaches down the road. The most important of these tasks include naming your firm, procuring proper certification and documentation, and establishing a corporate structure. The following article includes some legal considerations, but be sure to seek legal counsel for specifics.
Names, Licenses and More
If you haven’t already done so, review and complete the chores that will cement your new company’s legal framework. Some steps are easier than others, but all of them are critical:
- Name your company. The government distinguishes between a business’s legal and fictitious names. If you are your firm’s sole owner, your legal company name is your full name; in partnerships, the legal name is either the one cited in your partnership contract or the partners’ last names. For limited liability corporations (LLCs) and corporations, the legal name is the one you registered with your state government.
While official forms and applications require a firm’s legal name, you also may file a trade or fictitious name with your state’s appropriate agency. Sometimes called a DBA (doing business as) name, this tag should embody the unique aspects of the business.
For instance, the name “Flowers Your Way” tells prospective customers they can order floral arrangements designed to their specifications. “Round-the-Clock Car Repairs” promises to fix automobiles any time of the day or night.
Before finalizing a name, make sure no other business exists with that name. One way to do this is to visit the U.S. Patent and Trademark Office’s database. On this site, you can search for both trademarked business names, logos and other branding art. The Secretary of State’s offices for most states also provide this information on their respective websites. However, consulting a trademark attorney is the best way to determine name availability.
- Register your company’s name. This can be done online via individual Secretaries of State websites. Links for all 50 states, as well as U.S. territories, are available on the Small Business Administration site. To trademark a name or logo on a national level, visit the U.S. Patent and Trademark Office, which offers a detailed breakdown of policies and procedures.
- Obtain appropriate business permits and licenses. Depending on the type of venture, various licenses may be in order, with regulations varying from state to state. The U.S. Small Business Administration provides updated links to individual state licensing agencies.
- Procure a state resale tax number (also known as a sales tax number or resale certificate), if applicable. In most cases, retail businesses need this in order to purchase inventory and supplies at wholesale prices. The Internal Revenue Service provides links to individual state websites, including their departments of revenue, and business and economic resources.
- Open a separate business account. Never mix personal and corporate bank accounts, no matter how small your company. Keeping clear track of business income and expenses demands is important. A mish-mash of family and commercial transactions makes accurate bookkeeping in either category well-near impossible.
Given that you’ll probably require future financial services such as loans and credit card merchant accounts, opening a business account in a strong bank or other financial institution is a good way to start a relationship with prospective lenders.
- Enlist an advisory team.With the establishment of a business comes the need for all sorts of insurance coverage, financial advice and legal support. In addition to taking advantage of free expertise through the SBA, SCORE or a Small Business Development Center, it’s critical to recruit a good accountant, attorney and insurance agent – at least on a consulting basis.
Corporate Structure: More Choices
Even solo operations require a legal structure, not simply for tax-filing purposes, but also to take advantage of tax deductions, insurance breaks and revenue distribution (e.g. salaries, dividends). Here is a rundown of the models currently in use in the commercial sector:
- Sole Proprietorship. A basic, inexpensive structure, this type of company typically belongs to a single person or married couple. Because the owner runs the operation, he or she assumes personal liability for all debts and may transfer the business in part or in its entirety.
- Limited Liability Company (LLC). Particularly beneficial for smaller businesses, this structure blends the corporation’s limited personal liability with the tax advantages of a partnership and sole proprietorship. LLCs do not own stock, so corporate formalities are unnecessary.
- General Partnership. Though joint undertakings often require tact and restraint on the part of owners, this model does have advantages. Partnerships are cheap and easy to form. Partners share gains, losses and administrative chores, with each owner assuming personal liability for debts.
- C Corporation (Inc. or Ltd.). A model involving a good bit of complexity, C corporations are relatively expensive to launch, include corporate formalities and may be subject to higher licensing fees and regulatory oversight than other structures. For these reasons alone, an attorney should be on staff or on retainer.
- Sub Chapter S Corporation (Inc. or Ltd.) Sub Chapter S and C Corporations are similar, although the tax treatment is different. Both are complex structures, and it is best to consult and work with both an attorney and a tax professional.