You have dreamed of starting your own business for years. Now that you’re in the pre-launch stages, you may feel tempted to rush through some steps to open your new company as quickly as possible. However, it can cost you a lot more time and money when you don’t handle the legal aspects of business formation properly from the start. We discuss some of the most common legal missteps below and how to avoid them.
Choosing a Business Name Only to Discover Someone Else Already Owns It
To conduct business under a name other than your given legal name, you must register a doing business as (DBA) name with your secretary of state. You could find yourself in legal trouble if you skip this step and open your new business with a name that already exists in your market or area. The secretary of state will only approve the business name if it isn’t identical or similar to that of another company offering similar products or services in the same state. Some companies have a registered trademark that protects their business name in every state.
Select Your Business Entity Carefully
When you register your new business as a sole proprietor or general partnership, the law doesn’t recognize any separation between the business and its owners. That means a customer could sue you personally if he or she feels dissatisfied with your services or sustains a serious injury on your property. However, these entities could still make an appropriate choice for solo entrepreneurs or very small businesses. Incorporating your business or forming a limited liability corporation (LLC) affords you the most legal protection because the business operates as an independent entity.
Not Separating Business and Personal Finances
Federal law requires the owners of a corporation or LLC to keep separate bank accounts for their personal and company funds. Business owners could lose the protection they enjoy from registering as one of these types of entities if they don’t separate bank and credit card accounts. Although sole proprietors and general partnership owners don’t legally have to separate their finances, it’s still a good idea. It will save you a lot of headaches at tax time when you don’t have to research which income sources and expenses belong to your business and which do not.
Having Limited Understanding of Federal and State Compliance Requirements for Your Business
When it comes to business compliance, ignorance of the law is not a justification for breaking it. Before you open for business, make sure that you understand all compliance issues that relate to you. It will vary depending of your location, company size, and business entity, but some common ones include:
- Payment of federal and state quarterly taxes
- Payroll and state income taxes
- License and permit requirements for your business type and location
- Annual report of profit and loss
- Updates regarding significant changes to your partnership or LLC
Don’t Make a Move You Will Soon Regret
It’s easy to make a legal misstep and potentially costly to undo it. Business Partner Alliance is here to help your company get off on the right foot legally so you can launch with confidence.
We provide targeted coaching, consulting and business advisory services to help small and medium sized business owners achieve new heights. We put our passion and experience to work to help business people achieve their goals. Let’s meet for coffee to see how we can work together.
Emory Ware