You’ve got a great idea, done the fieldwork, got your funding, and put together a plan with projections. Now you’re finally ready to launch your small business.
Or are you?
There are several important, practical steps that need to be taken in order to make your new venture legally compliant. Follow this roadmap to make your small business official.
Decide on a structure
There are different ways that you can structure your business, but each one carries different implications. You need to weigh up the options and decide on a structure that best suits your circumstances before you can register your organization in your state.
The most common options are: sole proprietorship (or partnership)/Doing Business As (DBA); a Limited Liability Company (LLC); or, in the case of larger companies, a corporation.
- A sole proprietor is one of the most straightforward small business structures and is often used when it’s a home-based entity with no employees. In this case, there is no legal separation between the company and its owner. This structure is called a partnership when there is more than one owner, or a ‘Doing Business As’ (DBA) when you come up with a fictitious name for your organization.
- A Limited Liability Company (LLC) is another popular choice for small operations and combines some of the advantages of a corporation with those of a sole proprietorship. It also provides a barrier between the organization and the owner. It’s a good choice for owners who want flexibility in who manages or represents their brand, or those who don’t want to be personally liable for their company.
- A corporation, of which there are several kinds (for example C Corp, S Corporation, Nonprofit or Professional Corporation), is more typically used by larger companies with more sophisticated structural needs. It’s worth considering if you plan to go public in the future, but it comes with a lot of red tape for a single person or small organization to manage alone.
Choose a name
This can be one of the most fun and exciting parts of launching your new venture, so put your creative thinking cap on and get brainstorming! Some important things to consider when deciding on a name:
- Pick something that describes your venture, but isn’t too vague or general, as that can make it difficult to remember.
- Don’t choose a name that is very long or super complicated. Make sure it’s easy to read and pronounce, and don’t get too clever. If you find you have to explain what your name means, it can be a good clue that it’s not working.
- Don’t copy your competitors. Most consumers are smart and will pick up on this move quickly. It will also make it easier for you to be confused with other similar entities and could cause you to lose customers.
While companies often strive for a name that’s memorable or catchy, there are some other important considerations that must be weighed up:
- First off, you need to make sure your preferred name is legally available. Check sooner than later, so you don’t spend time, money, and energy on a name that you can’t use. You also don’t want to open yourself up to a trademark infringement lawsuit. There are many free business name search tools available online where you can check if your preferred option is already in use.
- Once you’ve done that, it’s also advisable to do a trademark search, which can also be done online for free.
- Finally, it’s always a good idea to check that the web domain for your chosen name is available. If your exact domain name is already taken, ensure it does not have existing content on it that may negatively affect your brand if people confuse the two.
Consult a tax practitioner
Consulting a tax adviser from the outset can save you a lot of pain and bother in the long run. Run your structure decision by them before registering to make sure you fully understand the tax implications of your venture.
Take the opportunity to discuss the best accounting method for your operational needs. Consistency is very important, so discuss what records you will need to keep and on what basis.
If your small business will have any employees, ask your tax adviser about Employee Health Care and The Small Business Health Care Tax Credit, which will help you pay for health coverage of your employees.
Apply for a Tax ID Number
Once your business is registered, you will most likely need to get a Tax Identification Number (TIN). There are different kinds of TINs, but you are likely to need an Employer Identification Number, or EIN.
This nine-digit number is issued by the IRS for free, and you will need it for all your tax returns, and in order to open a business bank account. Additionally, it means that you won’t need to give out your personal social security number to every client and vendor you engage with.
Get the right licenses and permits
Depending on what kind of company you have, or what sector you’re in, you may require specific licenses or permits to operate legally. How straightforward this is and which licenses or permits you need depends entirely on what kind of business you have.
Some examples include Fire Department Permits, Occupational permits/State licenses, Sales Tax License, and Health Department Permits. If you don’t know what permits you need, you can contact your local county/city office, or look into an online service that can handle this process for you.
It might seem like there’s an unending list to get through before you can launch your new business, but doing the groundwork properly is the first step towards success. Much of the groundwork of making your small business official can be done online, but if you find it overwhelming, consider consulting with a tax or legal professional.