Among the most common questions small business lawyers hear are related to how to start a business. Unless you're a serial entrepreneur, it's only natural that, as a new prospective business owner, you would be unsure about what concrete steps to take to turn your dreams into a reality. A small business lawyer from Priori's vetted network can walk you through what you need to do to get your new venture up and running from a legal perspective.
How to Start Your Business
Here are some of the first steps you should take to take to start your businses:
1. Create a Business Plan
A business plan helps you figure out where your company is going and maps out the things you must do to get there. This includes how you will overcome any difficulties and what you need to sustain your business once it’s launched. A business plan is useful for a lot of reasons: to understand what resources you'll need, to raise investment and to help your lawyer advise you on what legal structures make the most sense for your new venture. Some basic issues you will deal with include:
- The “big idea” behind your business;
- How you will accomplish your business goals;
- How you will fill your market's needs;
- Target market research, including competitive analysis;
- Proposed organization and management plans;
- Strategies for market penetration and growth; and
- Estimated costs and sources of funding.
2. Determine the Legal Structure of Your Business
It’s important to know what type of business you will be running, not only for managerial reasons, but also for compliance reasons. The way you incorporate will ultimately determine much of your reporting and compliance responsibilities, not to mention dictate the complexity of your incorporation documents. It’s important to weigh the ultimate goals of your company with the day-to-day needs of your business in order to determine which legal structure is best for your needs.
The following are the most common ways small businesses incorporate:
- C-Corporations. C-Corps are traditional corporations with individual tax entities. C-Corps tend to be the preferred entity of venture capital investors.
- S-Corporations. S-Corps are structured much like C-Corps, but these corporations taxed as pass-through entities. In addition, S-Corps are more limited in terms of investors and stock options.
- Limited Liability Companies. LLCs are much more flexible corporate structures with no set requirements for their operating agreement. These are typically taxed as pass-through entities and subject to fewer compliance requirements than corporations.
3. Finance Your Business
Financing a new business isn’t always easy. Sometimes founders of startups end up bootstrapping for the early stages. However, many new companies will need an influx of capital from an outside source eventually. Explore options for venture capital, angel investment, crowdfunding, loans and even grants to get your business up and running.
4. Register Your Business
In many cases, your business will be registered through the formal incorporation process that you chose. Other businesses will require filing a DBA. A DBA or “Doing Business As” is a legal pseudonym under which you can do business when the risk and legal obligations ultimately fall back on a single person (such as an accountant named Susan Doe who goes professionally by Taxes by Susie”). You also need to register a DBA if you use a name for your business that isn’t listed in your incorporation documents. Once you have registered your name within your state, however, it’s also helpful to go one step farther and formally register your trademark federally.
4. Register for Taxes
All companies must pay taxes, and even brand new, pre-revenue businesses aren’t exempt. You must register for a Employer Identification Number (EIN) or Federal Tax Identification Number with the IRS, as well as a state tax ID. Then you must file appropriate sales tax, social security, corporate income taxes and others as appropriate.
6. Obtain the Necessary Licenses and Permits
Many businesses need certain licenses and permits to operate. These can be obtained from the appropriate state and federal authorities. If you start operations without the necessary licenses and permits, you face serious legal consequences, so make sure to do your research or check with an attorney for compliance gaps.
The cost of forming a business can vary dramatically. When you hire a lawyer in the Priori network, forming a company plus drafting relevant governance documents typically costs anywhere from $300-$3500. In order to get a better sense of cost for your particular situation, put in a request to schedule a complimentary consultation and receive a free price quote from one of our lawyers.
What other legal issues do I need to worry about when I’m starting a business?
Unfortunately, there are too many to detail here. Starting a business will involve you in a host of legal, financial, and strategic issues. The best way to know the specific legal issues your unique business may face is to speak with an experienced startup lawyer.