Legal Considerations for Starting Your Own Business

Legal Considerations for Starting Your Own Business

Written By:

April Coulter

Starting a business can be overwhelming, but it can also be very rewarding — especially if you start out with very little capital. And it’s even more challenging when you’re a woman, considering how women-owned businesses are still considered a minority. Not to mention, the hurdles faced by women who have started a business are often different from those experienced by their male counterparts.

For starters, financing a business is already plagued with gender bias, as women have received a pathetic 2% of venture capital dollars. And given how women are often conditioned to take the backseat, not enough are taking the leap to embrace entrepreneurship.

The good news is that it’s never too late to be bold. You have to roll up your sleeves and be willing to take on the challenges involved in setting up a business, even if the odds are against you. It’s also worth noting that there is a lot of work involved, and to make your small business a successful and thriving one, there are crucial steps to take that need the utmost care.

For instance, before you launch your business, your new company must comply with lots of legal obligations. So here’s how to put up a business legally.

Choose a Business Structure

The two most common business structures are a Limited Liability Company (LLC) and Corporation.

LLCs protect you from personal liability, so if your business is being sued or declares bankruptcy, your personal assets, like your home or vehicle, won’t be at risk. You can file your business income as part of your personal income taxes, but you’ll likely need to pay self-employment tax. That said, setting up an LLC is a pretty straightforward process. You need to choose a registered agent, file the articles of organization, and create an operating agreement. Some states may require other paperwork, but the general process remains the same.

Corporations, like LLCs, are legally separate entities from their owners. They offer the greatest level of personal protection from liability, but they’re more expensive and complicated to form, especially compared to LLCs. Corporations also file separate income tax on their profits.

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Register Your Business Name

There are four ways to register your business name:

  • Firstly, as an entity name, which legally protects your business at a state level;
  • As a trademark, which legally protects your business at a federal level;
  • As DBA, (“Doing Business As”), which doesn’t offer legal protection but might still be required, depending on your location and business structure;
  • Or as a domain name, which claims your business’s web address.

Apply for Federal Tax ID Number

If you’re planning to hire employees, file employer tax returns, operate as a corporation, or use a tax-deferred pension plan, you’ll need an Employer Identification Number (EIN). It’s also your federal tax identification number. You can apply online or on the phone through the Internal Revenue Service.

Check if You Need a State Tax ID Number

Tax obligations vary across states, so you’ll need to check your state’s website for its specific tax laws when it comes to businesses. You’ll only need a state tax identification number if the state you operate in collects taxes from businesses.

Obtain Business Permits and Licenses

You’ll need to apply for business permits and licenses at both federal and state levels. But some licenses depend on your business location and industry. Check with the Small Business Administration for a list of common federal business licenses required based on industry. At the state level, permits and licenses also depend on location and primary business activities.

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Protect Your Business with Insurance

It’s best to get insurance to protect your business from potential risks. A common option is the general liability insurance. It protects your business from financial loss due to property damage, injury, medical issues, or lawsuits.

Meanwhile, product liability insurance is for cases of product defects or injuries resulting from products.

Lastly, the commercial property insurance is for property loss or damage due to natural disasters, accidents, or vandalism.

Open a Business Bank Account

As an owner of a business, it’s important to separate your personal and business finances before you start collecting payments. Choose a bank offering low banking fees for small businesses. For this, you’ll need your EIN, business formation and ownership agreement documents, and business license. With this account, you’ll be able to show a cash flow and be qualified for business loans should you ever want them.

Consult the Professionals

Last but not least, be sure to consult with a lawyer and an accountant. This can help make sure that your company is covered from both legal and financial perspectives before starting your business.


Starting your own business is never easy. But as long as you have confidence in your abilities and are willing to put in the work, then there’s no doubt that you will thrive.

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