Requirements to Start a Business

What are the requirements to start a business? Most small businesses must meet requirements to start a business which keep them in good standing. Registered businesses must maintain compliance with their state of incorporation, or else they may receive penalty fines or experience involuntary dissolution.

Here are some of the most common legal requirements to start a business.

Draft a Business Plan

This is not a legal requirement for starting a business. However, it helps lay out the groundwork in further understanding your small business ideas and “why” for going into business.

A business plan may be written in a traditional style or it may be a lean document if you do not yet have all of these details in place. This document acts as the foundation for the business. It allows you to set goals for the business and establish timelines to reach each one.

Use a business plan to detail what your company does and more about its offerings and services. Dig into the market analysis to learn more about your customer base and the industry analysis to learn about your competition. Details about the company’s cash flow, as well as its P&L and sales forecast, may be kept in the business plan’s financial projections section. This section will be particularly important to outline details in if your business seeks investors or outside funding requests.

Incorporate or Form an LLC

One of the legal requirements to start a business is to incorporate under an entity formation. Think about entities like limited liability companies and corporations.

Businesses often start off under the default entity formation of a sole proprietorship. However, this entity does not provide liability protection to its owner. Liability protection is found under incorporated entity formations. It acts as an additional layer of protection, separating personal assets from those of the business.

There are also specialized entity formations, depending on the industry in which you start a business. Some entrepreneurs, especially those which require state licenses to be in business like doctors or lawyers, may incorporate as professional corporations (PCs) or professional limited liability companies (PLLCs). These entities have the same benefits as their standard counterparts but are specific to licensed professionals.

Register the Business Name

The name of the business acts as its trademark. A clever business name differentiates the company from its competition. It allows customers to learn more about the company’s offerings and services.

Do you have to register a business name? The short answer is yes. Registration at the federal level ensures no other person or business uses this name. Once you conduct a name search and discover the name is available, file a trademark application to register it. Doing this ensures you have exclusive rights to the mark. It protects it from any potential trademark infringement.

Outside of business name registration, you may claim your domain name and file for a DBA. A DBA is a doing business as name. Some entrepreneurs may register for a DBA to do business under a name different from their existing one. This allows owners to conduct business transactions and open a business bank account. DBA registration only protects your business at a state level and does not provide federal legal protection.

Obtain a Tax ID

After incorporating or forming an LLC, the IRS will issue your business a nine-digit number. This is an employer identification number (EIN).

An EIN legally identifies the business. It helps ensure it remains in compliance paying federal and payroll taxes. You may also use an EIN for additional purposes, such as opening a business bank account and establishing business credit. An EIN is a requirement if you plan to hire employees, so you must be sure to obtain it prior to making any offers of employment.

Obtain Business Licenses and Permits

The business licenses and/or permits your business obtains depend on your industry and the laws of the county, city, and state where you are physically operating.

For example, some small businesses may need to register for a seller’s permit if they sell goods or services online. If you live in a region which charges sales tax and your business sells taxable products and/or services, you will need a sales tax license.

The full list of business licenses and permits your company needs will vary, so you should reach out to the Secretary of State. They may provide further details about license and permit requirements to start a business.

Designate a Registered Agent

A registered agent (RA) acts the point of contact between your business and the state. A third-party RA may be an individual or an organization. They accept service of process, organize the documents, and deliver it to the business and the owner in a timely and confidential manner.

Registered agents must meet certain requirements. They need to have a physical street address in the state in which you do business. They must be a resident in this state. RAs must be available between general business hours. Typically, this is Monday through Friday between 8 AM until 5 PM. Some entrepreneurs may appoint themselves to be their own registered agents. However, they must meet these requirements.

Obtain Business Insurance

Business insurance helps protect your business from any number of scenarios where a significant risk threatens the company.

For example, general liability insurance helps to protect your business in the event of financial loss. Explore the various types of business insurance which may be applicable to your business. Obtain the right insurance policy to protect yourself and the company.

Establish a Brand Presence

This is not one of the legal requirements to start a business. However, it is important to create and establish your brand identity.

Start with a marketing strategy. If you already have a business plan, several aspects of your marketing strategy are likely well-defined such as its market analysis and competitive analysis. Additional important aspects of your brand presence include building a website, registering any logos or designs, and using social media to engage with your audience.

Every business is different and may have a few additional requirements. If you have questions about which entity to incorporate as or business licenses to obtain, speak with a legal or accounting professional. They will provide you with the answers and extra guidance necessary for your entrepreneurial journey.

Let’s incorporate or form an LLC for your small business. Give us a call at 877-692-6772 or contact us at