There are certain legal requirements for people who want to establish a business, regardless of its scale and type of industry.
Step 1: Considering the Legal Structure of a Business
This is the first step in establishing a business that will allow people to create a legal solution for every problem which may arise. For example, a partner stated on the agreement his percentage of ownership, his responsibilities, and other duties.
According to corporate lawyers, determining the legal structure of business should be based on important factors such as tax and other financial obligations, scale of business, number of employees, financing needs, and state law.
These are the basic legal structures of a business:
• Sole proprietorship – The business is owned by a single individual who is liable for all the debts and obligations.
• Partnership – Two or more individuals own a single business.
• Corporation – A business entity owned by shareholders.
• S Corporation – A type of corporation that is not under double-taxation law (taxing the shareholders and the company).
• Limited Liability Company (LLC) – A structure that adopts the limited liability of corporation and the tax efficiency of partnership.
• Non-profit – An organization which is not motivated to make profits. Usually, this structure is exempted from federal taxes.
• Cooperative – An organization or business that aims to provide services to its member-owners.
Step 2: Register the Business
Business owners should register the name of their companies or establishments to the County Record-Clerk’s Office.
For sole proprietorship, the legal name for the business is the person’s full name. For business partnership, it could be the last names of the partners or the fictitious name they have agreed upon. And for corporations, it should be a unique fictitious name which should be registered to the state government.
Step 3: File for a Federal Tax ID
Owners must obtain an Employer Identification Number or EIN (also called as Form SS-4 and Employer Tax ID) which is released by the US Internal Revenue Service. (People can apply for this online.)
Step 4: Register the Business to the State Revenue Agency
After acquiring the Federal Employer Tax ID, business owners should file another one to the state revenue agency.
For a business that will sell products, the owners must obtain a Sales Tax Permit (also called as Vendor’s License) from the state or local government or both.
In addition to federal business tax, owners are also required to pay income taxes and employment taxes that will cover worker’s compensation insurance and unemployment insurance. In some states including California, employers should also pay for the worker’s temporary disability insurance.
Step 5: File for Licenses and Permits
Most business owners are required to have a general license before they can legally operate. Meanwhile, some businesses are required to have industry-specific operating permits from the state agencies.
To help you deal with issues involved in
corporation establishment and other related matters, consult with our expert
business and commercial law attorneys. Log on to our website and call us toll free for legal assistance.
