Small Business Start-up: Becoming a Legal Business Entity

If you are considering starting your own small business, you are no doubt aware that there are many considerations.  The focus of this article is specific to the decisions and steps involved in your small business becoming a legal business entity.  The primary considerations can be boiled down to four considerations, which come down to the laws and requirements within the state your business will form:

1. What business structure makes sense for your business type?
2. What forms of business structure are you able to form within your state?
3. What local and state laws govern your business structure and type?
4. What insurance and taxation requirements must you adhere to in your state?

The primary business structures include:  Sole Proprietorship, Partnership, Corporation (also known as a C Corporation), S Corporation, Limited Liability Company, Limited Liability Partnership, Non-Profit Corporation, as well as a few other less common forms of business.  The guidelines for organizing and operating each form of business entity vary from state to state.  Generally, your Secretary of State office will provide the information you need to determine which structure is appropriate for your business and what you need to do to file in your state.  At this point, you have answered the first two questions listed above.  

Once you have determined how you will legally structure your small business, you must find out what local and state laws govern the way you operate your business.  Often this depends not only on the business structure, but also the type of business your are forming.  For example, you will need to do your research to determine if there are any laws governing your business based on the goods or services you will provide.  There may be state licensure requirements related to the services you provide or goods you sell.  There may also be specific local or state reporting requirements related to your business structure in order to maintain the business and avoid expiration.  It is important to check the regulations related to the types and amounts of insurance your business must carry as well as become familiar with taxation requirements including tax benefits and implications you may realize as a small business owner and what records you must keep.

Research?  Where do you start?  There are a range of options from doing the research on your own to getting help from others.  If you are interested in doing the research yourself, your local Secretary of State office or website and local Small Business Association (SBA) are excellent places to start.  Often both will provide information on business formation, taxation, applicable laws.  If you need a little help doing the research, local SBA offices can connect you with a peer or mentor who can help guide you to sources of information.  Finally, you can reach out to professionals with experience such as lawyers specializing in small business, tax advisers and business consultants.