Part 2: Making Your Business Legal
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OK, so now you've settled on a unique business idea and are ready to get started. Well, wait just a minute. You have to make your business legal. That's right. You really have to take a serious look at the fundamentals of choosing a suitable form of business organization, establishing a business name and obtaining the necessary business license, etc.
No, no, no, don't get scared. It really isn't that complicated, but by taking this step, you will avoid such disasters as property violations, fines, back taxes, business name lawsuits and the issues of business ownerships. Plus, you will establish yourself as a very serious business owner, someone who really cares about their business and wants it to be as successful as possible.
For the sake of time, though, this will be a sort of crash course on making your business legal. Therefore, it is paramount that you seek adequate legal advice as soon as you decide to start your business.
You should also remember that regulations for these matters vary from state to state, county to county and city to city, therefore you will have to obtain necessary forms and file them with your appropriate government agency. We are including this section for your informational purposes only and will not be held responsible for your actions. Sorry to get serious on you all of a sudden, but this is pretty important stuff. Now that we've got that out of the way, let's chat about the various types of business you can start.
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Legal Entities
A sole proprietorship is where you are the head -- well, the only -- honcho. That's right. You make the decisions, pay the bills and taxes and keep the income that is left over. Any debts or obligations your business incurs are your personal responsibility. If you decide to move your residence, your business can move with you. When you die, your business, well, dies with you. You may operate as many sole proprietorships at the same time - or in addition to any role you may play as a partner in a business or corporation. However, you cannot be an employee of the business. This type of business is easy to start and to discontinue, but damages from any lawsuits brought against your business as well as debts incurred by your business can be taken from your personal assets. Ouch !
A partnership is when two or more people go into business together but do not form a corporation. The only difference between a partnership and a sole proprietorship is that each partner must have their own Federal Identification Number (FIN) and they must pay their taxes. However, the personal assets of partners are at the same risk as those of sole proprietors. Another important point is that you cannot be an employee of the business and, therefore, arrangements for paying employees must be agreed upon in advance. Each partner may draw a regular guaranteed payment, may share in the profits, or both. Lastly, when one partner dies or withdraw, the partnership is legally terminated and a new partnership agreement must be designed. Note: It is important that your attorney draft a legally binding agreement for any partnership that you would like to have.
A corporation is a legal entity in itself. It limits your liability and may enable you to obtain insurance benefits not available to a sole proprietorship or partnership. On the same token, it may be subject to higher taxes and could increase your insurance costs. One important thing to note is that the laws dealing with corporations can be complicated and establishing a corporation may be expensive and time-consuming. Therefore, it is highly recommended that you consult an attorney for more information. |
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Assumed Business Name Act and Trademarks
Besides choosing a legal entity, you also have to decide on a name for your business. Not only is this important for marketing purposes, but it is also important that you file your name with the appropriate authorities if you will be using a name other than your own. For example, if you choose to be called DSC Pet Services, then you need to register that name under the fictitious name act. That act indicates that you are doing business under another name other than your own. And without filing this DBA statement you will probably not be able to obtain a city business license or open up a bank account in the name of your business.
In order to do this, you must obtain and register your form with the appropriate government agency, pay a nominal filing fee and then publish your fictitious name in a general-circulation newspaper. And, if you would like to trademark the wording of your name and its typographic representation or graphic symbol, you should seek a trademark. A trademark includes "any distinctive rod, name, symbol, device or any combination thereof adopted and used, or intended to be used, by a manufacturer or merchant to identify his goods or services and distinguish them from others." In order to do this, you need to research the name and ensure that it is not already taken and then fill out the paperwork and send it along with your application fee. That's it.
Licensing
Last but not least, I would like to discuss obtaining a local business license, which is a permit to do business in a specific city or county. Usually this involves going to the appropriate office, filling out a form, paying an annual fee based on the volume of business you expect to do, and then renewing your license each year by mail. Often you will be required to post your license in your place of business. And, if you are planning on working at home, you must review your local zoning regulations regarding home businesses and ensure that your idea is the type of home-based online business that is permitted. You might even have to obtain a "home occupation permit" before you obtain a business license. |
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Proceed To Chapter I Part 3: Developing A Business Plan
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