We all have doubt and fear in the back of our minds that we’re never going to be able to do what we hope to do. We’re stuck in a cycle of working hard just to get by and starting a small online business legally can seem like a pipe dream.

I know if you’re reading this, you have some level of desire to break out of that cycle so here are 9 legal requirements for starting a small business. You can start tackling this right now to prepare yourself for your new life as an entrepreneur.

Key Takeaways on the legal requirements of starting a business

• Legal requirements for starting a small business include choosing a legal structure, registering for tax IDs, getting permits, using contracts, following ad rules, and protecting your brand.
  
  
• Choose a business structure (sole proprietorship, partnership, Limited Liability Company, or corporation) based on taxes, paperwork, liability protection, and cash flow needs.
  
  
• Get an EIN from the IRS if you have employees, operate as a corporation or partnership, or need it for specific tax filings and business situations.
  
  
• Open a business bank account to keep business and personal money separate, and to protect your records and taxes.
  
  
• Avoid trademark issues by picking a domain name and social handles that do not infringe on someone else’s registered trademark, then reserve them early.
  
  
• Get the right licenses and permits, use contracts (including required online policies), follow FTC rules for online advertising, and protect your brand with copyright and trademark registration.

Choose your business structure

If you’re just starting out, your business may be structured as a sole proprietorship, partnership, limited liability company (LLC), or corporation. Here’s what each structure entails:

The first small business legal requirement is deciding what type of business entity you should be. There are four different types of business structures you can choose from, listed below:

• Sole Proprietorship – This is the simplest type of business structure. As a sole proprietor, you report your business income and expenses on your personal tax return. You also have unlimited liability for all debts and legal actions against your business. This means that if someone sues or otherwise gets involved in your business, they can go after your personal assets to pay off any debts or judgments incurred by your company.

• Partnership– Partnerships are also relatively easy to form and this type of business structure has been around for centuries. As with sole proprietorships, partnerships do not require filing with any government agency. However, there are some complex tax rules involved in partnerships so it’s best to consult an accountant if you’re considering this type of structure.

• Limited liability company– An LLC is perfect if you want to pass profits and losses to members based on their contributions, offer both limited liability protection and the option to choose how you structure the company (member-managed or manager-managed), including filing articles of organization, creating an operating agreement, and appointing a registered agent. If you’re a single-member LLC, you’ll be able to maintain control of your business (managing the business) while keeping profits as personal income, all with personal liability protection.

• Corporation – Corporations have the most formalized structure and they’re more complicated to set up than the other types of businesses mentioned so far, often requiring articles of incorporation; they can operate as an S corporation or C corporation. The advantages of being a corporation include strong personal liability protection and the ability to raise capital through stock sales.

Business owners need to consider several factors when choosing the type of legal structure for their companies. 

These include: 

• The tax implications of each structure. 
• The amount of formal filing and record keeping required by each structure. 
• The personal liability protection that is afforded by each structure. 
• The cash flow needs and circumstances of the owner or owners.
  
  

Get your EIN

Another legal requirement for your small business is getting your EIN (Employer Identification Number). You can get your EIN by registering with the IRS using Form SS-4, as well as any other local offices or agencies that could affect your business license or taxes (such as city halls), to ensure compliance with employment laws. EINs, also known as your federal tax ID or Employer Identification Number, are necessary when:

• You have employees and need to handle payroll taxes.
• You operate as a corporation or a partnership.
• You file Employment, Excise, or Alcohol, Tobacco and Firearms tax returns.
• You withhold taxes on income, other than wages, to a non-resident alien.
• You have a Keogh plan.

You also need one when you are involved with: 

• Trusts, except certain grantor-owned revocable trusts, IRAs, Exempt Organization Business Income Tax Returns
• Estates
• Real estate mortgage investment conduits
• Non-profit organizations
• Farmers’ cooperatives
• Plan administrators

Set up a business bank account

The reason for this is simple: if your business is making sales and making money, you need to save the money in a separate account so that it isn’t mixed with your personal accounts.

This small business legal requirement is important because if you accidentally spend money that was meant for your business, the IRS will start to consider all of your money as theirs too. This means that they could start taking money from your personal accounts to pay for the business costs.

Setting up a business bank account is relatively easy, but you must contact the bank first and let them know that you are starting a new business. They will ask for some information about your business and how much money it will be receiving and sending. You can go ahead and give them some general ideas about it; however, don’t get too specific yet!

It’s best to wait until your small online business is well underway before you get more specific with them. Once they know more about what you are doing with the account, they may start asking you more questions and find a reason to deny your account.

Choose a domain name NOT infringing on someone’s existing trademark

And you’ll need a host for your website. A domain name is the website address people use to get to your site, like www.theceolegalloft.com. Your hosting service is where your site lives on the Internet.

Typically, you will have an account with a hosting company (like Siteground) and they will provide you with a place to store all of your website files and a private space on the internet, so that when someone types in a domain name, they can see your website.

Before selecting your domain, complete business name registration to legally secure your name, especially if operating under a “Doing Business As” name. If you’re using a domain name that is a registered trademark, then the registered trademark owner may try to get your site taken down for infringement.

Reserve your social media names

Again, you’ll want your handles not to infringe on a registered trademark. This way, if someone else grabs the handle for the social media network that you want to use, you’ll still have time to grab another one.

Of course, this isn’t something you should be doing until after you’ve decided which social media networks you want to use for your new site.

My recommendation is to grab the ones like: Facebook, Instagram, Pinterest, YouTube, and TikTok which are the more popular sites. If you don’t use them, you can always delete them or potentially sell them to someone who would like to use the name.

Get licenses and permits

Depending on the type of business you want to start, it may be a legal requirement to obtain licenses and permits.

Your business structure, such as a sole proprietorship or LLC, determines the specific licenses and permits you need. Local zoning regulations may come into play for physical locations, while state requirements often include a sales tax permit if you sell taxable goods.

Set up your contracts

It sounds boring, but getting all of your contracts in line is a critical small business legal requirement. Contracts like a privacy policy are legally required when starting an online business.

But you’ll also want a contract that protects your business like non-disclosure agreements for new hires and freelancers, as well as nondisclosure agreements for potential investors and partners.

Legally advertise online

Advertising online is governed by the Federal Trade Commission. When advertising online, you’ll need to ensure that:

• You’re following the CAN-SPAM act if you’re sending emails to an email list
• Testimonials and endorsements must reflect the typical experiences of consumers, unless the ad clearly and conspicuously states otherwise.
• Make sure you are making the appropriate disclosures
• Any ads must be truthful, not misleading, and, when appropriate, backed by scientific evidence
• You must allow people a way to enter a giveaway without requiring a purchase, and you must have official rules posted that govern the sweepstakes.

If you break FTC rules and your under their jurisdiction, that could mean:

• Orders to cease and desist, with fines up to $53,088 per violation
• Violations of some Commission rules also could result in civil penalties
• Violations of court orders could result in civil or criminal contempt proceedings.
• Refunds to consumers for actual damages in civil lawsuits.

Protect your names and content with copyright and trademark registration

The battle against copycats is never-ending, but there are several things you can do to protect your rights.

To start, register your copyrights and trademarks with the U.S. Copyright Office and the U.S. Patent and Trademark Office to get a legal basis for fighting counterfeiters in court. Pair this with business insurance for comprehensive risk management.

Keep an eye on social media sites like Facebook and Twitter for discussions about your products that may lead to counterfeiting.

If you’re using a professional photographer or graphic designer, make sure you have the copyrights transferred to you before using the work. If you hire a freelancer to design your graphics or write your blog posts, make sure they sign a contract assigning the copyright to you as well.

Frequently Asked Questions About Legal Requirements for Starting a Small Business

Do I need an EIN for my small business?

You typically need an EIN if you have employees, run your business as a corporation or partnership, or file certain tax returns (like employment or excise taxes). Other cases where an EIN is required, includes certain trusts, estates, nonprofits, and plan administrators.

Why should I open a business bank account?

Because mixing business and personal money can create tax headaches and messy records. Unclear separation can make it harder to prove what was business income and what was personal.

How do I choose a business name and domain without trademark problems?

Start by making sure the name is legally available (including DBA and business name registration steps if they apply), then avoid using a domain that matches someone else’s registered trademark. If you pick a name that conflicts with an existing trademark, the owner can push for takedowns or other enforcement.

What legal rules apply to online advertising for a small business?

FTC rules, including CAN-SPAM for email, truthful ads that are not misleading, proper disclosures, and rules for testimonials and endorsements. Additionally, giveaways and sweepstakes need a no-purchase entry option and official rules.

Final thoughts on the legal requirements for starting a business

As you can see, there are a lot of legal things that a new business owner has to do to run a business. There are also a lot of state laws and federal laws that apply to businesses.

Unfortunately, you can’t be sure which laws or rules apply to your business until you commit some kind of violation. Sometimes the penalties for the violations can be very costly or even devastating. Don’t let your business start paying fines for not complying with the laws and get your plan in place today.

Are you ready to legally protect your business?

If you’re starting a new business, these are the resources I recommend you start with.

• The Legal Edit: Get the legal templates you need to protect your online business from lawsuits and copycats.

• The CEO Legal Kit: The foundational guide to get your business on the right legal footing from the beginning. Along with the modules explaining legal concepts, you’ll have 23 different templates to use including legal disclaimers and refund policies.

• Contract templates: Get the templates you need for your online business. These templates are lawyer drafted and reviewed by another attorney to ensure they are fully protecting you.