Legal Considerations When Starting a Business

Starting your own business is an exciting endeavor, but it can also be overwhelming. From creating the concept to writing your business plan to finding a location and staff, each aspect of your new venture requires due diligence. In addition to these operational logistics, it’s important to take into account the legal considerations when starting a business. Before forming your own company, take time to understand the laws that may apply.

Naming Your Business

The first major legal consideration when starting a business corresponds with choosing your company’s name. If you choose a name that is being used by another company, you can be sued. Even if you choose a name that is similar to another business, you could open yourself up to litigation. To prevent this from happening, do your research before making this important decision.

Start by searching the internet to find out if that business name already exists. Go to a domain name website and search for the domain name you want. If it’s unavailable, go look at the existing company’s website to see if they are actually in business.

Before selecting a name, double-check it is available through your state’s corporation commission. If you want to use a name that is owned or used by others, you may want to consult with an attorney to determine if there can be any legal actions taken.

Choosing a Business Structure

Once your business name has been chosen, you can start setting up the business. The first thing you need to decide is what kind of business structure you will use:

  • Sole Proprietorship: An unincorporated business owned and run by one individual. This is the simplest and most common structure.
  • Cooperative: A corporation where those using its services own and run the company, often having a core group of decision makers who outline business operations.
  • Partnerships: One business that is owned and operated by two individuals, who contribute to all aspects of the company.
  • Corporation: An independent legal entity where the corporation is legally liable for debts incurred and actions taken by the business, but ownership belongs to the stakeholders.
  • Limited Liability Company: Provides the limited liability features of a corporation with the tax efficiencies and flexibility of a partnership.
  • S-Corporations: Created through a tax election from the IRS, corporations can apply for S designation to avoid taxation on both the shareholders and business.

Each of these business types come with different tax, administration and legal obligations. If you are unsure about what structure makes the most sense for you, you should consult with an attorney. Alternatively, you can obtain free business structuring advice from a chapter of SCORE.

While there are many other legal considerations and laws for starting a business, bear in mind these two priorities when first launching any business venture.