Starting a business requires attention to many details. Depending on the type of business that you are opening, these tasks may differ. However, there is a basic process that most business owners should follow to legally meet the requirements of the local and federal governments. You need to research your jurisdiction to ensure that you follow all regulations for starting up a business in your area.
Business Structure
Once you have decided on the name of your business, you must determine the type of entity that you want to run so that you may legally register it. For a small business, common types are the sole proprietorship and the limited liability company (LLC). An LLC provides protection to the owners, or members, against business debts that are taken out by the LLC, whereas a sole proprietorship does not. To open as a sole proprietorship, no special papers must be filed and only the licenses and permits required by your jurisdiction are required. However, your state's Secretary of State office will require the filing of articles of organization and an operating agreement for your LLC that outlines how the business will be run. You can find a listing of Secretary of State offices in each state online (see Resource section).
Business License and DBA
To legally operate in your jurisdiction, you will need to apply for a business license from your city clerk's office. If you use a name other than your own or use the name of your LLC or other business structure, you will need to file for a fictitious name certificate, also known as "Doing Business As" or DBA, from your Secretary of State office. After you have your business license and DBA, you will be able to open a bank account, sign a lease and apply for a loan with your business name.
Federal and State Filings
In order to be a legal entity in the eyes of the federal government, you will need to obtain an Employer Identification Number (EIN), also called a Tax ID number, which identifies your business to the Internal Revenue Service. Log on to IRS.gov to apply online for your EIN. You will be able to use this number for requesting credit for your business and when working with suppliers or other businesses.
If you are buying products to resell, you will need a state reseller's permit or certificate, which allows you to purchase items and materials without paying sales tax. Once you sell your product to the end user, you will charge tax and then pay it to the state. Log on to your Secretary of State office website for more information on how and where to apply.
Liability Considerations
Before you open the doors to your store, sell a product or perform a service, buy a commercial insurance policy with limits that will protect your business and investments. Although insurance is not required, you should not begin operating without it, as you will be legally responsible if someone is harmed by an act related to your business. If a customer falls in your shop, you may be liable for injuries incurred. If a product causes an allergic reaction or poses a choking hazard, you risk being sued. If you operate as a sole proprietor, courts may attach your personal assets to pay for restitution. Consider an additional umbrella coverage for higher limits of protection.
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