And deep in the back of our minds, we all seem to have some vestige of doubt and fear that we are never going to be able to do what we hope to do. You can’t unstick yourself from this cycle of just working hard enough to get by, then starting a small online business on the legal side seems like some pipe dream.
I know that if you’re reading this, you have some level of desire to break free from that cycle; here are 9 legal requirements for starting a small business. You can start tackling this right now to prepare yourself for your new life as an entrepreneur.
# SELECT YOUR BUSINESS FORMATION
When you open your business for the first time, it will likely be a sole proprietorship, partnership, LLC, or corporation. Here’s what each formation means:
The first legal requirement of small business is to determine what kind of business entity you should be. There are four different types of business formations you can choose from, listed below:
# Sole Proprietorship – This is the most basic form of business formation. As a sole proprietor you report your business income and expenses on your own personal tax return. In addition, you are personally liable for all debts and judgments against your business which means that a plaintiff can go after personal assets if someone sues or otherwise becomes involved in your business. Alone it is easy to establish a sole proprietorship. In fact, one of the considerations against most businesses using such set-up is the unlimited liability in sole proprietorship.
# Partnership- Partnerships are also relatively easy to establish and this form of business has been around for thousands of years. Like sole proprietorships, partnerships are not required to file with a government agency. However, there are some complicated tax laws in partnership matters and it’s usually best to seek consultation from an accountant if you are interested in this sort of structure.
# Limited Liability Company-LLC; This is ideal for if you would like to pass on profits and losses through to members based on their contribution, can offer both limited liability protection as well as the ability to determine how you wish to structure the company, member-managed or manager managed. If you are a sole-member LLC you would be able to maintain control over your business (managing the business) while keeping all profits as personal income.
#Corporation – Corporations are the most formalized and are the more complex, time-consuming entity to form than the other business types I discussed thus far. The advantages of being a corporation include
Business owners must take into account the following considerations when choosing the legal structure for their businesses.
These include:
The tax implications of each structure.
The amount of formal filing and record keeping required by each structure.
The individual liability protection offered by each structure.
The cash flow needs and position of the owner or owners.
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#GET YOUR EIN
Another legal requirement for your small business is getting your EIN. You can get your EIN by registering with the IRS using Form SS-4, as well as any other local offices or agencies that could affect your business license or taxes (such as city halls). EINs are required when: You have employees; You operate as a corporation or a partnership; You file Employment, Excise, or Alcohol, Tobacco and Firearms tax returns.
You withhold taxes on income other than wages to a non-resident alien.
You have a Keogh plan.
You also must have one when you are affiliated with:
-Trusts, except certain grantor-owned revocable trusts, IRAs, Exempt Organization Business Income Tax Returns
-Estates
-Real estate mortgage investment conduits
-Non-profit organizations
-Farmers’ cooperatives
-Plan administrators
# SET UP A BUSINESS BANK ACCOUNT
This is quite simple: if one is selling something, they are making sales; consequently, their business is making money, so the money should be saved separately in another account and not mixed with personal accounts.
This legal requirement for small businesses is significant because if you unwittingly spend money that was earmarked for business, the IRS will begin considering all your money to be their money also. They may start withdrawing money from your personal bank accounts to cover business expenditure.
Setting up a business bank account is very easy; however, you must contact the bank first and let them know that you are starting a new business. They’ll ask for some information about your business and how much money it will be receiving and sending. You can go ahead and give them some general ideas about it; however, do not get too specific yet!
It would be best to hold out till your small online business is well on track before you become more specific with them. After they have an idea of what you are doing with the account, they tend to ask you so many questions and find a reason to deny your account.
# CHOOSE A DOMAIN NAME NOT INFRINGING ON SOMEONE’S EXISTING TRADEMARK
And you’ll need a host for your website. A domain name is the web address people use to get to your site, like www.theceolegalloft.com. Your hosting service is where your site lives on the Internet.
Normally, you would have an account with the hosting company, like Siteground, which then gives you space to store all your website files and private space on the internet, so when someone types in a domain name, they can view your website.
If your domain name is a registered trademark, then the owner of the registered trademark may try to have your site taken down for infringement.
# RESERVE YOUR SOCIAL MEDIA NAMES
Again, you will also want to ensure that your handles do not infringe on any registered trademark. That way, if another person tries to grab the handle for the social network you had had in mind, you will have time to snap up another one. Of course, this is not something you should do until after you have decided on the social networks which you wish to accompany your new site.
I would recommend that you select these ones among them; Facebook, Instagram, Pinterest, YouTube, and TikTok, and they just so happen to be some of the most popular sites. You can erase them or sell in case there is an entity that might require use of the name if you feel you do not need them.
#GET LICENSES AND PERMITS
You may be required by law to obtain a license or permits regarding the kind of business you want to open at the beginning of your business.
We take that nagging fear along with us locked in our minds that we would not ever be able to do what we hope and so continue working hard to get by, but starting an online small business legally has now become a pipe dream.
I understand that if you are reading this, then you must have at least a little bit of desire to break out of the cycle, so here are 9 legal requirements for starting small. You can start tackling this right away to prepare yourself for your new life as an entrepreneur.
# SET UP YOUR CONTRACTS
Of course dull, but one of the most critical legal needs for business owners: get all your contracts in line.
These include privacy policies, technically one of the things you need to establish any online business.
However, that is where you would like to see a contract that protects your business; for example, confidentiality agreements with new hires and freelancers, and nondisclosure agreements with potential investors and partners.
# LEGALLY ADVERTISE ONLINE
Advertising online is regulated by the Federal Trade Commission. Any time you advertise on line you have to comply with :
Implement the CAN-SPAM act if you are mailing a list of e mails
Testimonials and Endorsements must represent the average experience of consumers unless the ad clearly and conspicuously states otherwise
You have to make proper disclosures
Any advertisement has to be truthful-not misleading and when appropriate backed by scientific evidence
You have to give an opportunity for participants to enter your sweepstakes without any purchase necessary (you can see why here), and you are required to have official rules in place governing the sweepstakes.
If you break the rules of the FTC and fall under their jurisdiction, that might mean:
Cease and desist orders, fines up to $43,792 per violation
Violations of some Commission rules also may be punished with civil penalties of up to $40,654 for a given violation. Violations of court orders may lead to proceedings in civil or criminal contempt.
Refunds to consumers of actual damages in civil litigation.
DEFEND.
# PROTECT YOUR NAMES AND CONTENT WITH COPYRIGHT AND TRADEMARK REGISTRATION
First, register your copyrights and trademarks with the U.S. Copyright Office and the U.S. Patent and Trademark Office to give you legal grounds for battling counterfeiters in court.
Second, attack security. Passwords have become the new security staple for preventing intruders from access to accounts, but that is not always sufficient. Implement IP blockers and encryption programs to block intruders who want to steal your content or manufacture knock-offs.
Keep an eye on social media platforms such as Facebook and Twitter for any buzz about your products that could inspire infringement.
If you hire a professional photographer or graphic artist to create work for you, obtain transfer of copyright before using the work. If you are hiring a freelancer to create graphics or to write for your blog, ensure that he or she signs a contract that includes assignment of copyright to you as well.
# FINAL THOUGHTS ON LEGAL REQUIREMENTS FOR STARTING A BUSINESS
As can be seen, there’s so much legal stuff that a new entrepreneur has to do to start running a business. Besides all the state laws and federal laws, there are plenty of them that affect businesses.
Regrettably, you do not learn which laws or regulations apply to your business unless you commit some type of violation. Sometimes those penalties for violations can be extremely expensive or even disastrous. Do not let your business begin paying fines for not being in compliance with the laws and get your plan in place today.
# ARE YOU READY TO LEGALLY PROTECT YOUR BUSINESS?
In the event that you are launching a new venture, then you’d probably be looking out for free or low-cost materials. Well, we have them. In fact, we have many resources to help you get your business off the ground and law compliant.
-The Legal Edit: Get all the legal templates you need to keep your online business safe from lawsuits and copycats. And this resource costs you next to nothing!
-The CEO Legal Kit: This is the foundational guide for getting your business on the right legal footing from the very beginning. Modules explain concepts, but you’ll also have access to 23 different templates to apply-things like legal disclaimers and refund policies.
-Contract templates: Get the templates you need for your online business. These are lawyer-drafted and approved by another attorney to ensure they are fully protecting you.