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Entrepreneurship 101: 5 Legal Requirements for Starting your Business

Apart from funding, setting up, and hiring employees, you need to meet certain legal requirements before starting your business. Here are 5 of them.

By Julius Choudhury

Are you finally actualizing your business idea? Starting a business is challenging and you need to prepare adequately. Apart from funding, setting up, and hiring employees, there are legal requirements you need to fulfill. Before starting your business, familiarize yourself with these legal bases to avoid lawsuits, fines, or jail time. Legal resources are plenty and readily available online, or you can seek legal counsel.

Legal Requirements for Starting a Business


Below are legal requirements that will help you get started and ensure you don’t run into trouble with the law.


Choose an Appropriate Business Entity

The first thing to do before starting your business is designating the proper structure or entity. The kind of entity affects your liability in terms of fundraising ability and the amount of taxes you pay. You need to specify if your entity is a limited or general partnership, a sole proprietorship, C-corporation, a limited liability company, or S-corporation. Once you've chosen one, have it designated officially by your secretary of state.

An LLC implies that you have limited liability to damages experienced by customers. This not only protects your business from possible lawsuits but also your financial security. Even if your business becomes successful, an LLC prevents you from unjust lawsuits that take up a lot of money, time, and energy. Ensure that you have a more modern workplace to give your workers the tools they require to emphasize a motivated and eager workflow.


Get an EIN (Employer Identification Number)

For you to file taxes as a business, you need to have an employer identification number. You can get one by downloading it from the IRS website or requesting one room for the IRS through a phone call. Single-member LLCs and sole proprietorships are exempted from this requirement.

If you are the CEO, you will need to fill in your social security number, date of incorporation, and business information like the name and address. Keep a copy of the signed document.


Comply with Security Laws

Investors and founders of partnerships, LLCs, and C-corporations are subject to state and federal security laws. These laws ensure that businesses provide accurate and reliable information. This information helps to create a fair market, protect businesses from fraud and inside trading.


Insure your Employees

Most states legally require business owners who have more than five employees to insure them. There are different ways to insure workers; one of them is the worker's compensation insurance in case they get injured while on the job. Compare the various state-by-state compensation requirements when starting your business. Failure to insure workers can lead to lawsuits that could cost you dearly.


Check the Registrations, Licenses, and Permits your Business Requires

Different types of businesses require specific permits, licenses, and registrations from the state or city. If you’re looking to establish a more modern workplace, you will need building permits, industry-related permits, business licenses, fire permits, health-related permits, and liquor licenses. Missing these requirements can lead to expensive malpractice lawsuits.


Bottom Line

Although starting a business is challenging, creating a legal check-list for your startup can save you from missing crucial steps. You can get legal information online or seek help from a professional to keep your business secure. Some legal requirements include designating a proper entity, complying with licenses, permits, and regulations, getting an employer identification number, and insuring employees.

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Finance Magazine: Entrepreneurship 101: 5 Legal Requirements for Starting your Business
Entrepreneurship 101: 5 Legal Requirements for Starting your Business
Apart from funding, setting up, and hiring employees, you need to meet certain legal requirements before starting your business. Here are 5 of them.
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