6 Legal Elements To Consider When Starting A Business

1. Choose a business structure

The first step in creating a new business is choosing a business structure. This is how your business exists legally.

If you just start doing business on your own, that’s usually a sole proprietorship. You often don’t need any formal paperwork and will file your business taxes with your personal tax return. A partnership is similar to a sole proprietorship, except that it’s when you start your business with at least one other co-owner.

Forming an LLC or corporation can give you liability protection. If an LLC or corporation can’t pay its debt or gets sued, it generally can’t lose more than the assets in the business. The owner(s) of an LLC or corporation rarely have to worry about losing their home or other personal assets if something goes wrong with the business. You’ll need to do a little extra paperwork and meet some annual administrative requirements, but it’s usually well worth the extra peace of mind.

2. Trademark your logo and name

If you came up with a great business name, you don’t want anyone else to take it. When customers hear your name, you want them to think of you and not get confused and go to a competitor.

When you start doing business, you do have some rights to your name, but registering your trademark can give you greater protection. For example, if you don’t register your trademark, a business in a different industry or different state might be able to start using your name. If you sue to stop them from using your name, a judge might rule that because they aren’t in the same type of business or are far away from you, there’s no chance of customers getting confused. When you formally trademark your business name, you get to decide if and when other people can use it.

Logos are similar to business names. To make sure no one else can use your logo or something very similar to your logo, you’ll want to apply for a logo trademark. Having a trademark registers your logo so no one else can use it. It also gives you the right to take legal action against anyone who infringes on your trademark.

3. Check for relevant business licenses and permits

When you open a business, you’ll often need to get licenses and permits. Sometimes, you need a specialised license to prove you have education and training, such as a doctor or lawyer. Sometimes, licenses might be in limited supply, like liquor licenses in certain areas.

The license might also be related to your physical building rather than the work you do. You may need a permit to show that your business is safe for customers to enter. In some cases, you may need to schedule an inspection before you can open your doors to the public.

Each state, city, and county may have its own licensing and permit requirements. Check with each level of government where you intend to do business.

4. Consult a CPA and conduct proper bookkeeping

It’s usually a good idea to schedule a consultation with a CPA before you start a new business. CPAs do a lot more than file your annual tax return.

They can suggest moves you can make to claim more business deductions or to increase the profitability of your business. You may also be unaware of accounting rules you need to follow or things like whether and how you need to collect sales tax. Your CPA will ask you questions about your business to help make sure you have everything covered. You can also ask any questions you have.

Good bookkeeping is also important. You need to properly document your income and expenses both for tax purposes and in case you want to take out a business loan in the future. Your CPA can help you set up a bookkeeping system.

5. Open a separate business bank account

If you decide to open a corporation, LLC, or partnership, you may need to have a separate business bank account by law. That’s because your business is a legally separate entity from you, so you need to keep the business’s money separate from your personal money. Even if you’re a sole proprietor, it’s still a good idea to have a separate business bank account.

A separate business bank account does several things. First, it makes your accounting and bookkeeping easier since you don’t need to worry about separating personal and business transactions. Second, it can make a tax audit or lender’s review easier since they won’t have to question which transactions are for your business. Finally, it makes managing your money easier since you know that all the money in your business account can be used for your business and doesn’t need to cover personal expenses.

Many banks offer completely free business checking accounts to small businesses. Some have no requirements, while others might require a minimum balance or amount of transactions per month.

6. Consider purchasing insurance

Smart business owners also usually buy insurance. Insurance protects you from a wide variety of possible losses. Without insurance, you might have to cover surprise disaster expenses by spending money you wanted to use to grow your business, selling business assets, or investing more of your personal money than you wanted to.

There are many types of insurance policies available.

  • Commercial general liability insurance protects you if you accidentally injure someone or cause property damage.
  • Commercial property insurance covers your business property from things like fires and theft.
  • Commercial auto insurance protects your vehicles the same way that personal auto insurance does. If you’re using a personal vehicle for your work, you may need to add commercial coverage even if you already have personal coverage.

There are also specialised types of insurance like malpractice insurance, professional liability insurance, product liability insurance, and more. Talk to an insurance agent to find out what types of coverage your business needs.


When you decide you want to start a business, it’s probably because you have expertise in that area and think you can do things better than existing businesses. Smart business owners also know to get expert help in areas they aren’t as familiar with. Talk to legal, accounting, and insurance professionals to make sure there aren’t any steps you’re missing. You’ll better protect your business, and you may find ways to increase your profits.

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