Kody Wirth is a content writer and SEO specialist for Palo Alto Software—the creator's of Bplans and LivePlan. He has 3+ years experience covering small business topics and runs a part-time content writing service in his spare time.
8 min. read
Updated January 5, 2024
A lot of creative work and planning is required to start a business.
There are also less enjoyable but absolutely necessary legal requirements to comply with. Tax obligations, registrations, permits, and insurance may seem like a never-ending list if you don’t know what is absolutely necessary.
This guide covers the ten legal steps you must take as a new business.
Don’t worry about completing these steps in the order presented. Most can, and should, be done simultaneously. Use this as a checklist to ensure you’re ready to officially do business.
If you’re running a business in the UK, check out our guide covering UK-based legal requirements.
A business structure refers to how a company is legally organized. Your chosen structure impacts operations, taxes, paperwork, fundraising, and liabilities.
Here is a brief overview of the most common business structures to get you started.
Looking for more? Check out our full guide on business structures to learn about each option and how to select the right structure for your business.
You need to choose a business name that reflects your brand and isn’t already legally claimed. Once you have a name, register it to certify and protect it.
At a minimum, you should register an “entity name” to protect your business name at the state level. You may also need a trademark to bar others in the industry from using the name at a national level.
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You can also register a business name by filing a fictitious name (“doing business as”) statement. It allows a business to operate under a different name other than your formal business or personal name.
You must have state and federal employer identification numbers (EIN) to legally hire employees, pay federal and state taxes, apply for licenses and permits, and open a business bank account.
An EIN is required if you:
You are required to change/replace your EIN if there has been a change in tax status, business name, address, management, or ownership.
Dig Deeper: How to apply for a federal tax ID number
Even if you’re not in an official partnership, you should consider drafting a partnership agreement. Doing so will clearly define rights and responsibilities—helping you amicably resolve any disputes.
Drafting a partnership agreement is a step many entrepreneurs miss and can be catastrophic if not done initially. Here’s what Noah Parsons, COO of Palo Alto Software, says about the need for a partnership agreement.
“I’ve heard way too many stories—several from people I know personally—who have skipped the step of documenting a partnership and had things go sideways in the worst way. The effort required to do this step is low, and the consequences of not doing it are significant.”
Dig Deeper: How to draft a business partnership agreement
There is, unfortunately, no standardized list of federal and state-level permits and licenses you must acquire. It ultimately depends on location, business activities, industry, and government rules.
The only way to operate a business legally is to apply for the proper permits and licenses. They indicate that you’ve complied with the set regulations and requirements for running a business within a set jurisdiction.
Also, depending on the city or county, you might be required to apply for local business permits.
Consider if your product/service has any intellectual property (IP) that needs protection from being copied by others. If not protected, anyone can leverage your creations in their business.
Need a quick overview of IP? Here are the most common Intellectual Property protections to consider.
If you’re unsure whether to file for legal protection, consult an IP attorney for professional guidance.
Dig Deeper: Intellectual property explained
You need to know and understand the local, state, and federal taxes that apply to your business. It’ll help you file taxes accurately, hire employees, and make timely payments.
As always, the content here is general knowledge, not legal advice. To be sure you are paying the correct taxes for your business, consult an accounting professional or contact the IRS.
Dig Deeper: Small business taxes for beginners
Before hiring anyone, you must understand the different employee classifications. Each classification varies in how it legally impacts employment, including wage laws, benefits, and tax implications.
Here’s a brief summary of the primary employee classifications:
Understanding these classifications will prepare you to comply with labor laws, provide appropriate benefits, and manage your workforce effectively. Check out our hiring guide for additional guidance in choosing the right employees and roles for your business.
While it’s not always a legal requirement—business insurance will protect you from costly damages or lawsuits.
If you’re unsure of what business insurance you need, these are the most common:
Dig Deeper: Check out our full business insurance guide for why, when, and what types of business insurance you may need.
Unsure how to handle these legal steps? It may be worth connecting with professional legal counsel to ensure you have your bases covered.
By completing this requirements list, you can legally do business and are now ready to get your finances in order.
You now know all the costs associated with permits, applications, and insurance. And have your federal tax identification number.
This means you can map out all of your startup costs, open a business banking account, and begin setting up an accounting process. But those are just a few steps to set up your finances.
Check out the next step in starting a business for the full process.