9 Legal Steps You Must Take Before Starting a Home Business

If you take the time to follow the right legal steps right from the start, you can save costly fines and other problems down the line.

There are many important steps that you need to take before starting a new business. This is true even if you plan to run it from home.

Running a home business saves you the hassle of a lease or mortgage. However, you still need to register as a company before you can legally operate. Here are 9 steps to get your legal ducks in a row.

Step 1: Register your company with your state.

Registering is a smart idea, even if you do business under your legal first name, as it allows you to claim tax benefits and legal protection that you would otherwise not be entitled to.

There are three ways to register your business: a U.S. trademark, a state-level entity name, and a DBA name. Trademark registration is not required by law, but it can protect your business from infringement and prevent other businesses from opening under the same name.

Registering your business name with your state is important and a necessary step for all small businesses. Depending on the rules of your city and county, you may also need to register a Doing Business As (DBA) name.

All company names must be unique. Before deciding on a name, check the U.S. trademark database as well as your state's corporate registration records to make sure they're not already in use.

Step 2: Get an Employer Identification Number.

An Employer Identification Number (EIN) is required when opening a commercial bank account, hiring employees, or applying for required permits and licenses.

You can get an EIN for free through the IRS EIN assistant. The guided tool asks for your business structure and your DBA name. So make sure you have solidified these details before you begin.

Step 3: Get a State Tax Number.

If you are hiring employees or selling taxable goods, you will need a government ID number. The specific rules and application process vary from state to state.

If you are from New York, South Carolina, or Massachusetts, you can use this portal to register for both your state ID and EIN in one session. For other states, contact the SBA or your local Chamber of Commerce to see if you need one and how to apply.

Step 6: Designate a registered agent.

Firms operating as a partnership, corporation, LLC, or not-for-profit organization must have a registered agent prior to filing with the state. The registered agent will receive all official mail for the company and must have a mailing address in the state where you are submitting the documents.

You can designate yourself as a registered agent, and in many states your company can be its own registered agent. This is usually the easiest option for stationary businesses with a single location or for private businesses with a single owner.

Some small business owners prefer to use a registered agent service to follow up on legal notices and deadlines. This is also a good solution for web-based businesses if you don't want to register it at your personal address, or if you want to do business in multiple states and need a mailing address for each.

Step 5: put down the documents necessary for your business structure.

The specific documents you need to submit will vary depending on whether you are starting an LLC, partnership, or business. There are fees for filing these documents, but they are not material (typically $ 300 or less).

For an LLC, you must file a company agreement and organizational articles. For a partnership, you will need to submit your partnership certificate and agreement. Corporations must submit statutes and statutes (or resolutions, if you are a nonprofit).

As with state tax numbers, the process varies based on where you live. Check your state's government website to see what documents to submit.

Step 6: Open a commercial bank account.

A commercial bank account keeps your personal assets separate from those of your company, making it much easier to keep track of your profits and file taxes accurately. Commercial bank accounts also offer perks such as purchase protection and make it easier to obtain a line of credit from the institution in larger amounts than is possible for private customers.

Man signing paperwork; Image via Pexels.com.

You want to open at least one dedicated checking account. If you want to accept credit card transactions from customers, you will need a merchant service account.

The same documents that you submit to register your business are required to open a business account, including the EIN, incorporation documents, and ownership agreements. Therefore, you should follow these steps first.

Step 7: determine if you need permits or licenses.

A federal license is only required for a handful of industries. Most of the permits and licenses that you apply for are at the state level.

While you cannot apply for licenses until you are registered, be sure to check your state's requirements before finalizing your business papers to ensure that you can meet the requirements.

This is especially important if you want to make and sell groceries. States with cottage food programs allow baked goods and shelf-stable foods to be sold, and 28 states allow online sales. If you want to start an in-house cupcake bakery in a state like New Jersey with no cottage food program, you need to plan a workaround like renting a commercial kitchen space.

Step 8: set up any required inspections.

Submitting an application is only the first step in obtaining most licenses and permits. An inspection by a licensed representative of the associated regulatory agency must normally be performed before the license is granted.

The inspection time can be long for some industries. You should therefore plan this well in advance of planning the opening.

Step 9: Get Business Insurance.

Most states require companies to have workers' compensation insurance if they have employees. Depending on your state and industry, other types of insurance may be required, such as: B. commercial vehicle insurance or professional liability insurance.

Other types of business insurance, even when not required, are simply a good idea and will protect you and your business in the event of damage, injury, or litigation.

Many insurers offer small business packages that include a combination of coverage such as property insurance and liability insurance. For a home rental business, you may also want to speak to your homeowner insurer to see if you can upgrade to include other coverage.

In summary

Not every company needs to do each of the steps listed above. For example, if you've started a blog or other virtual business model, you might not need any permits or licenses. Depending on your industry and business structure, starting your business can be as simple as registering with your state. If you take the time to follow the correct legal steps right from the start, you can save costly fines and other problems down the line.

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