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What are the legal demands for setting up a business? 8 tips for start-ups

When entrepreneurs start a new business, they should comply with all the legal obligations associated with running a small business. New businesses and start-ups have several legal requirements, including financial regulations, tax obligations, and labor laws. Make sure your new business meets all legal obligations so you can get back to growing your business.

These topics will guide you through the legal requirements for starting a business:

  • What are the legal requirements for starting a business?
  • Can I start a business without registering it?

What Are the legal requirements for starting a business?

You may have a great new business idea, but to get your start-up off the ground, you first need to make sure you meet all the legal requirements associated with starting a business. Here’s an easy-to-follow guide to legally set up your business:

Forming an LLC or Corporation

The first legal requirement you must meet as a new business owner is to choose the corporate structure of your business. You can choose between forming an LLC or a Corporation. Both structures have advantages and disadvantages, so you should do your research well before choosing a business structure for your start-up.

Limited Liability Company (LLC):

An LLC protects you from personal liability under most circumstances. This means that if your business is sued or files for bankruptcy, your assets, including your home and vehicle, are not at risk. You can report your business income as part of your income tax with an LLC, but you will likely have to pay self-employment tax.


A Corporation is a business that is legally separate from its owner or owners. Of all business structures, Corporations offer the most outstanding personal protection from liability. However, they are more pricey and complicated to set up, and Corporations pay taxes on their profits separately.

Register Your Business Name

Once you have chosen a business structure, you will need to register your business name. Choose a name that reflects your brand and make sure it is not already taken. You can then register your business. There are four ways to register, each with its purpose:

  • A company name: legally protects your business at the state level.
  • A trademark: protects your business legally at the federal level.
  • A DBA (Doing Business As): does not provide legal protection but may be required depending on your location and business structure.
  • A domain name: protects your company’s web address

Apply for a Federal Tax ID Number

Your federal tax identification number is called an Employer Identification Number (EIN). It permits you to legally hire employees, pay federal taxes, apply for business licenses and open a business account. You can make an application for an EIN through the IRS website. Your business needs an EIN if you plan to do any of the following:

  • Hire and pay employees
  • File tax returns for employers
  • Operating as a Corporation
  • Use a tax-deferred retirement plan

Determine If You Need a State Tax ID Number

Research whether your start-up needs a state tax identification number. You only need one if the state in which you operate collects taxes from businesses. Since tax obligations vary from state to state, it’s best to visit your state’s website and learn about local laws regarding your income and payroll tax obligations.

Obtain Business Permits and Licenses

You will require to make an application for business licenses and permits at the federal and state level. The specific licenses you need will depend on the industry you are in and the location of your business.

The Small Business Administration has assembled a standard federal business licenses list by industry, a good starting point for your research.

At the state level, the licenses and allows required and the fees payable will depend on where you are located and your main business activities. State and local requirements depend on where you do business.

Protect Your Business with Insurance

Business insurance can shield you in cases where the personal liability protection provided by your specific business structure is not sufficient. Business insurance can protect not only your assets but also your business assets.

Some insurance policies are required by law, such as unemployment and disability insurance. It is also a great idea to take out business insurance to protect your start-up from other potential risks. Some standard business insurance policies are:

  • General liability insurance: Shield your business from several forms of financial loss, including property damage, injury, medical problems, lawsuit settlements, or court judgments.
  • Product liability insurance: If your business sells products, this insurance protects you if one of your products is defective and injures a customer
  • Commercial property insurance: Shield your business against loss or damage to company property due to natural disasters, accidents, or vandalism.

Open a Business Bank Account

From a legal viewpoint, you must separate your private and business finances before accepting payments from clients. Choose a favorable bank and meets your needs, e.g., by offering lower banking fees for small business customers.

Once you have chosen a bank, you will need to provide some information about your business to open an account, including:

  • Your Employer Identification Number (or national insurance number in the case of a sole proprietorship).
  • The incorporation documents for your business
  • Your business license
  • Ownership agreement documents

Consult the Professionals

To ensure that you meet all legal obligations as a new business, you should seek professional advice. Consider meeting separately with a lawyer and an accountant to ensure that your business is both legally and financially secure before you start it.

Can I Start a Business Without Registering It?

You must first register your company name to use that name for your business. If you do not have a company name registered with the Secretariat of State, you can only conduct business under your name. Before registering your company name, make sure that it is not already being used by someone else. Then register the name online with the IRS.

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