The beginning stages of a business can be a hectic time, and it’s easy to overlook the legal aspects of the startup process. However, in order to comply with local and national laws, it’s important that a startup follow the proper legal guidelines. The following checklist will help entrepreneurs know what steps to take to avoid being overwhelmed.
1. Decide Whether to Form a Corporation or a Partnership
A corporation is an entity where only one person makes decisions about the future of the company. A partnership is an entity which involves two or more people in the decision-making process. Which of the two entities you create will be based on the expectations and goals for the company. You’ll also need to register a business name at this point. Check with trademark registrations to make sure you aren’t violating any trademarks with the name you choose.
2. Apply for a Federal Tax ID Number
All transactions made on part of the company are tracked via a tax ID number. It serves as a sort of social security number for your company. You’ll want to register this as soon as possible in order to be in legal compliance.
3. Ensure all the Proper Paperwork is Filled Out and Filed with the Correct Authorities.
For both litigation protection and tax purposes, it is vital that you file the correct forms with the local legal authority. This is often the city government or local courthouse. There is usually a fee associated with the incorporation process that averages around $500.
4. If working in a Partnership, Determine How Much Equity and Responsibility Goes to Each Partner
Determining ownership and other important issues ahead of time can prevent tension and awkwardness in the future. Many partnerships fail to agree on the terms of the partnership ahead of time, which results in oversights later down the line. Determine how ownership is determined, what time commitment is expected, and the sort of salaries each partner is entitled to.
5. Ensure Employees are Properly Classified
Labeling an employee as an independent contractor can lead to legal repercussions and fines by the IRS. If someone is an employee, then you must provide benefits for them if they work over a certain number of hours per week.
6. Establish a Proper Business Plan and Ensure Policies are in Place
A business plan and operational policies will help establish your business and a roadmap to follow for the future.
7. Ensure All Permits are Valid
Depending upon the type of company formed, certain permits will be required. These can include zoning permits, liquor licenses, sales tax license, and more. Certain regulations may be stricter than others depending upon the type of business.
It is always in your best interest to consult with a business lawyer during the formation of a startup. A business lawyer can help ensure you stay in compliance with all laws, including the more obscure regulations you may not be aware of. Following these seven guidelines and seeking legal counsel will help ensure your startup is correct in the eyes of the law.