Starting a business means dealing with a range of legal requirements. To help you navigate the complexities of how to legally start a business, here are 12 small business legal requirements to be aware of. While not every item will apply to your specific situation, understanding these requirements can help you start your business on solid legal footing.
1. Choose a business structure
Your business structure affects your daily operations, taxes, and personal liability, so consider one that balances legal protection with practical benefits. The four most common options:
- Sole proprietorship: Easiest to form for a business with one owner. No state filing required to create, but provides no legal separation between the owner and the business.
- General partnership: Formed automatically when two or more people run a business together for profit. No state filing required to create, but provides no legal separation between the owners and the business.
- Limited liability company (LLC): A popular choice for small businesses, offering personal liability protection plus pass-through taxation. More compliance requirements than with a sole proprietorship or general partnership.
- Corporation: A separate legal entity owned by shareholders, protecting owners from personal liability for business debts. Generally, more complex to maintain than an LLC.
For more details, see Comparing company types.
2. Select a business name
Every business needs a legal name. Depending on your business structure, this may be the name of the owner or the name listed on your formation documents.
Before you settle on a name, it helps to understand the naming rules that apply. Sole proprietorships can typically operate under the owner's name without any formal filing. LLCs and corporations, on the other hand, must register their legal name with the state during formation. You can also reserve the name of your LLC or corporation ahead of time by filing a separate form with your formation state.
Each business structure has its own naming requirements. Corporations, LLCs, limited partnerships (LPs), and limited liability partnerships (LLPs),must follow the rules set out in their governing state statute. For example, an LLC's name must include a designation showing it's an LLC, such as "limited liability company", "L.L.C.", or "LLC". Specific rules vary from state to state.
Even sole proprietorships and general partnerships are subject to certain restrictions, like not having a name that is misleading to customers.
Read more about naming your startup business and how to register a business name for your LLC.
Check name availability
Once you have a name in mind, confirm that it's actually available to use. Search your state's business name database to make sure no other registered business is using the same name or one that’s too similar. It's also worth checking for existing trademarks and seeing if a matching web domain is open, especially if you plan to build a website around your business name.
Read more about naming your startup business and how to register a business name for your LLC.
3. Appoint a registered agent
A registered agent is responsible for receiving important legal documents on behalf of your company, such as service of process (or notice of litigation), and franchise tax and annual report notices.
States typically require LLCs, corporations, and other formal business entities to designate a registered agent before filing your formation documents. If your company plans to do business in another state (known as foreign qualification), you’ll need to have a registered agent in that state as well.
Not just anyone can serve as a registered agent. Your agent must meet specific state criteria. For more information, read: What is a registered agent?
4. Register your business with the state
If you plan to operate as an LLC or corporation, you’ll need to register your business with the state. Both business structures provide benefits such as personal asset protection, tax advantages, and added credibility for your business.
Forming an LLC or corporation involves filing a formation document with your Secretary of State’s office (or the equivalent agency that handles business entity formation).
Sole proprietorships and general partnerships aren’t required to file formal paperwork to be created. However, they may still need to register with the department of revenue and other agencies.
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5. Obtain an EIN
Your business will probably need an Employer Identification Number (EIN), issued by the IRS. An EIN is sometimes referred to as a federal tax ID or federal employer identification number (FEIN).
An EIN is used to identify your business on tax filings and other tax-related documents. Banks, financial institutions, business credit card issuers, and vendors often require it as well.
Even if you don’t have employees, your business may need an EIN. All corporations and most LLCs must have an EIN. For more information, see Do I need an EIN for my LLC?
6. File a DBA
If you want to do business under a name different from your entity's legal name, you can file a "doing business as" (DBA) name. A DBA is also known as a trade name, assumed name, or fictitious business name.
Depending on your state, a DBA is filed with either the state (typically the Secretary of State), the county clerk, or in some cases, both.
Any business that wants to operate under a name other than their own legal names (including sole proprietors and partnerships) can file a DBA.
For more information, see What is a DBA? (And how to register one).
7. Register for a state tax ID
If your business sells goods or services, you may need to register with your state's Department of Revenue and apply for a sales tax ID number. This allows you to collect and remit sales tax on taxable transactions.
Requirements vary by state, so check your state's website to confirm what applies to your business.
8. Check zoning laws
Local zoning regulations impact all businesses, including home-based businesses. In some cases, they may even prevent you from operating a business out of your home.
Checking zoning laws before you launch can save you from costly fines or a forced shutdown later on. You may also uncover hidden operational restrictions, since even a "commercial" property doesn't mean it's zoned for any type of business.
Before you get started, check with your city or town government about zoning ordinances that apply to your business. If you have questions about how a zoning ordinance applies to your business, an attorney can help explain what it means and whether you might qualify for a variance (waiver).
9. Obtain business licenses and permits
Most businesses need licenses and permits to operate, which may be issued at the federal, state, county, city, or local level. Check your state and local government websites for specific requirements, including general business licenses, home occupation permits, and zoning-related permits.
Federal licenses are typically only required if your business is regulated by a federal agency. (Ex. the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF))
Beyond general business licenses, certain professions and industries require additional professional or occupational licensing. This often applies to businesses like pharmacies, construction companies, architecture firms, medical practices, and hair salons.
10. Understand your legal responsibilities as an employer
Hiring employees adds legal responsibilities, including compliance with labor and employment laws. As an employer, you must pay employees correctly, withhold employment taxes, maintain records, follow rules on employing minors, provide eligible workers with unpaid or medical leave, and more.
Key federal employment laws include:
- The Fair Labor Standards Act (FLSA): Sets federal wage and hour rules, covering minimum wage, overtime, child labor, and equal pay for equal work.
- The Occupational Safety and Health Act (OSHA): Requires employers to provide a safe and healthy work environment.
- Payroll taxes: Employers must withhold and pay FICA (Social Security and Medicare) and Federal Unemployment Tax Act (FUTA) taxes.
- The Employee Retirement Income Security Act (ERISA): Governs certain administrative aspects of employee benefits and retirement plans.
- The Consolidated Omnibus Budget Reconciliation Act (COBRA): Employers with 20 or more employees must offer those who lose benefit protections the option of continuing to have group health plan coverage.
- The Family and Medical Leave Act (FMLA): Requires employers with 50 or more employees to provide unpaid leave under certain circumstances. States can also set more expansive leave standards.
State-level requirements may include:
- Registering with the state for Workers’ Compensation
- Registering for state unemployment insurance
- Reporting new hires to the appropriate state agency
- Providing disability and paid family leave benefits coverage
- Offering some form of health insurance benefit
Note: States may have their own laws on minimum wage, classification of workers, and more.
11. Obtain business insurance
Beyond state unemployment insurance, most businesses need additional coverage to protect against common risks. The right combination depends on your industry, whether you have employees, and how your business operates.
Common types of business insurance include:
- General liability insurance: Covers claims related to bodily injury, property damage, or advertising injury that occur as a result of your business operations.
- Professional liability insurance: Protects service-based businesses against claims of negligence, mistakes, or failure to deliver promised services.
- Commercial auto insurance: Covers vehicles used for business purposes, which typically aren't covered under a personal auto policy.
- Workers' compensation insurance: Required in most states if you have employees. Covers medical costs and lost wages for work-related injuries or illnesses.
- Property insurance: Protects business-owned buildings, equipment, and inventory against damage from fire, theft, or other covered events.
Check your state's requirements, since some types of coverage, like workers' compensation, may be mandatory depending on your location and number of employees.
12. Register a trademark
A trademark is any word, phrase, symbol, or design (or a combination of these) that identifies your goods or services and helps customers tell your brand apart from competitors.
Registering your trademark with the U.S. Patent and Trademark Office (USPTO) adds it to the USPTO public database and strengthens your legal rights if someone else uses a similar mark.
Read more in What is a trademark?
Other requirements to keep in mind
A few additional requirements can come up after your business is formed, depending on how and where you operate.
Filing for foreign qualification
If you conduct business in more than one state, you’ll typically form your business in your home state and then file for foreign qualification in each state where your business is active. For more information, see Doing business in another state (foreign qualification).
Keeping up with annual report and franchise tax requirements
If you operate an LLC or corporation, you’ll likely need to file annual reports and pay annual franchise taxes. Some states also require LLCs to file initial reports soon after formation. For more information, see What is an LLC annual report and how to file one for your business.
Renewing your business licenses and registrations
Most business licenses, permits, and registrations aren't permanent, they need to be renewed periodically, whether annually, biennially, or on another schedule set by your state or local government. Missing a renewal deadline can result in late fees, lapsed compliance, or even suspension of your ability to legally operate. Keep track of expiration dates for each license and registration your business holds, and check with the issuing agency for specific renewal requirements and timelines.
For more information on specific requirements for LLCs and corporations, see Business compliance requirements & consequences.
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