Starting your own business is both exciting and challenging. After doing your research, writing a business plan or roadmap, and deciding on a business structure, you’ll want to consider the other legal requirements involved so your business operates with all of the required licenses and permits.
More often than not, independent contractors aren’t willfully avoidant of these laws; they are simply unaware of what is necessary. Here are five important legal requirements to review and understand before launching your small business.
1. Business Name Registration
To register your business name you’ll likely register a “Doing Business As” (DBA) or “Fictitious Business Name” (FBN). This process lets your state or local government know the name you are operating your business under. This registration doesn’t provide trademark protection, but it does allow you to create and use the name you want for branding purposes without having to incorporate.
If you don’t register a DBA name, the name of the business will default to the name of the legal owner of your business. For example, if your name is Rachel Smith and you form a consulting company, the legal name of the business will be “Rachel Smith.” However, if you decide to name your company “Rachel Smith Consulting,” you’ll need to register this as a DBA name. Specific DBA registration rules vary from state to state.
The only time you don’t need to register a DBA name is if you’re a sole proprietor and decide to operate under your own name. Likewise, if you do intend to create an official business structure like an LLC or corporation, your chosen business name will automatically register with the state.
If you are planning on operating nationally or providing online services, you may want to consider getting your business name trademarked. A DBA name or incorporated business name will not offer brand protection in the 49 states where your business is not registered. While trademarking is not a requirement, it will provide stronger protection for your brand. This process involves applying for a trademark with the U.S. Patent and Trademark Office. If you do want to pursue a trademark, start by conducting a comprehensive search to make sure the name you want to use is available.
2. Federal Tax Requirements
Any business that operates as a corporation or partnership or has employees will need an Employer Identification Number (EIN) from the IRS. An EIN identifies your business for tax purposes—think of it as a Social Security number for your business—and you can use to open a business bank account, file tax returns, and apply for business licenses. The easiest way to apply for an EIN is online via the IRS EIN Assistant. If you operate as a sole proprietorship, you are not required to obtain an EIN, although obtaining one is a way to create additional separation between business and personal liability.
Independent professionals also need to be aware of federal tax obligations—income, self-employment, estimated, employer, and excise taxes. Your specific business structure will determine your federal tax obligations as well as the forms you use to report these taxes. The U.S. Small Business Administration (SBA) provides information about these taxes and forms.
3. State and Local Tax Requirements
In addition to federal taxes, independent contractors are also required to pay state and local taxes—self-employment, payroll, income, sales, and property tax. These taxes will vary from state-to-state and are based on your business structure. If your company has employees, you will also be responsible for paying state unemployment taxes. The SBA provides information about these specific state tax obligations.
4. Business Permits and Licenses
Just like any other business, independent contractors must obtain proper permits and licenses. Depending on your industry and where your business is located, you may need to be licensed on the federal level as well as on the state level. Federal licenses are required for businesses involved in any sort of activity that is supervised and regulated by a federal agency. State licensing and permits will vary depending on location.
5. Business Laws and Regulations
Even as a small business owner, you’re subject to some of the laws and regulations that apply to large corporations. These include advertising, marketing, finance, intellectual property, and privacy laws. Review and understand which of these laws may apply to your business.
When starting a small business, there are many legal details, reports, and forms to work through to remain compliant. MBO Partners has extensive experience assisting independent contractors in starting their businesses and can provide support and guidance to ensure your business is set up correctly.
The information provided in the MBO Blog does not constitute legal, tax or financial advice. It does not take into account your particular circumstances, objectives, legal and financial situation or needs. Before acting on any information in the MBO Blog you should consider the appropriateness of the information for your situation in consultation with a professional advisor of your choosing.
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