Starting a business can be one of the most exciting times in your life as you dream about what you want to create and accomplish—but first you need to begin with some concrete basics. Once you've figured out your business plan, location and financing, it's time to take care of these five things when starting your business.
1. Choose the right legal structure
Before you open up your doors, you first need to decide on a business structure. You should consider very carefully the right business structure for your enterprise as it can affect your personal liability, taxes, profits, and more.
You have several options, including the following, which are used to create most new businesses these days:
- Corporation: Shareholders are not personally responsible for company debts; allows opportunity to raise capital from investors; formal record-keeping required; may reduce taxes, especially self-employment taxes.
- Limited Liability Corporation (LLC): Generally protects personal assets from company debts; no corporate tax as profits can be passed directly to owners; fewer corporate formalities required.
- Sole Proprietorship: No corporate formalities required; run by one individual who is personally responsible for the business's debts.
You may also organize as a non-profit, limited partnership (LP), or limited liability partnership (LLP).
2. Choose and register your business name
In order to do business under a trade name, i.e., not your own name, you will need to register for a DBA (“doing business as”) name. Having a DBA will allow you to open a bank account and legally conduct business under your business name and may even lower startup costs.
3. Obtain business licenses/permits, and get set up for taxes
If you have organized your business as anything but a sole proprietorship, you will have to register and file documents with your state to register for a business license; state law varies on the procedure, and in some circumstances, a sole proprietorship may even need a business licenses and/or other permits, so be sure to check your state's regulations.
While you're doing this, you should also make sure you're registered to pay state and local taxes; again, the specific requirements vary, so make sure you follow your state's rules.
4. Trademark your name and/or logo
You've worked hard to create a name and/or logo that is unique and perfect for your business; you don't want to risk that others could use it as their own to damage your brand and business reputation. The only way to protect yourself and your business from this happening is by trademarking your logo.
5. Protect your business with a living trust
It's never to early to make plans for your business should you no longer be around or able to handle it. One of the best ways to make sure it falls into the right hands seamlessly in such a situation is by placing it in a living trust.
A living trust is similar to a last will and testament in that it allows you to transfer property to chosen beneficiaries, but with two big advantages: (1) a living trust may provide instructions for the management of your business if you become incapacitated; and (2) a living trust doesn't usually doesn't get tied up in probate.
That is, upon your death, if your business has been placed in a living trust, it would likely transfer to the beneficiary more quickly, easily, and less expensively than if it had been passed in a will, which can mean business is less likely to be interrupted in the meantime.