Legal Requirements for Starting a Business: A Complete Guide
Starting a business is an exciting journey—but before launching your product or opening your doors, you must ensure everything is legal. Understanding the legal requirements for starting a business not only protects you from fines and penalties, but it also sets a solid foundation for future growth.
Let’s walk through the major legal steps every entrepreneur must take, whether you're launching a small side hustle or building the next big thing.
1. Choose the Right Business Structure
The first legal step is selecting your business structure. This decision impacts your taxes, liability, and paperwork.
Popular business structures include:
Sole Proprietorship: Easy to start but doesn’t separate your personal and business liabilities.
Partnership: For businesses owned by two or more people.
Limited Liability Company (LLC): Offers protection for personal assets and is flexible for taxation.
Corporation (C Corp or S Corp): Suitable for larger businesses or those seeking investors.
It's a smart idea to consult a legal expert to understand which structure works best for your goals.
2. Register Your Business Name
Next, you need to register your business name—especially if it differs from your personal name.
There are two common types of business name registrations:
DBA ("Doing Business As"): For those using a trade name.
Trademark: Protects your brand name on a national level.
Check with your local Secretary of State or business bureau to ensure the name is available and doesn’t conflict with existing trademarks.
3. Get a Federal EIN (Employer Identification Number)
An Employer Identification Number (EIN) is like a Social Security number for your business. It’s required for:
Hiring employees
Opening a business bank account
Filing federal taxes
You can easily apply for an EIN through the IRS website for free.
4. Obtain Business Licenses and Permits
Licensing requirements vary by location and industry. Some businesses may need several permits before operating legally.
Common examples include:
General business license
Health department permit (for food businesses)
Zoning permits
Home occupation permits (if operating from home)
Research both federal and local laws that apply to your specific business type.
5. Understand Zoning Laws
If you plan to run a physical storefront or office, make sure it’s in the right zone.
Zoning laws regulate how property can be used in certain areas—commercial, residential, industrial, etc.
Contact your city or county zoning office to ensure your chosen location aligns with local ordinances.
6. Open a Business Bank Account
Separating personal and business finances is crucial for tax purposes and liability protection.
To open a business account, you usually need:
EIN
Business license or formation documents
Operating agreement (for LLCs)
It’s also smart to set up a credit card and accounting system at this stage.
7. Comply with Tax Obligations
Depending on your structure and location, you may be responsible for:
Income taxes
Sales tax collection and filing
Self-employment taxes
Payroll taxes (if hiring)
It’s highly recommended to work with a tax professional to stay ahead of deadlines and avoid surprises.
8. Create Contracts and Legal Agreements
If you’re working with partners, clients, or vendors, use legally binding contracts. This protects your business in case of disputes.
Consider creating:
Partnership agreements
Non-disclosure agreements (NDAs)
Independent contractor agreements
Terms of service and privacy policy (for online businesses)
9. Secure Business Insurance
While not always legally required, business insurance helps protect your assets and gives peace of mind.
Some common types include:
General liability insurance
Workers’ compensation
Professional liability insurance
Commercial property insurance
Some states require workers' comp if you have employees, so make sure you’re covered.
10. Know the Difference: Buying vs Starting Business
Many entrepreneurs ask—should I build from scratch or buy an existing business?
There’s no one-size-fits-all answer, but understanding both options is key.
Check out this helpful resource on buying vs starting business to evaluate the pros, cons, and which path may work best for your goals and timeline.
Final Thoughts
Starting a business isn’t just about passion and product. It’s also about compliance and legality. By following these legal requirements for starting a business, you’ll stay on the right side of the law and focus more on growth and innovation.
Don't skip the legal checklist—it could save you from costly setbacks down the road. And if you’re still weighing your options, be sure to compare buying vs starting business to find the best launch strategy for your entrepreneurial journey.
