Legal requirements for starting a business: A checklist

From business formation to developing a brand identity and executing a marketing strategy, launching a business demands a litany of steps and requirements that need to be completed.

The specific obligations for initiating a business differ depending on the nature of the business and the location, encompassing the state, county, and city. It is essential to thoroughly examine the particular guidelines and regulations set forth by the state, county, and city where you plan to operate, as well as any additional requirements from relevant agencies concerning zoning, licensing, employment, permits, and taxes. The obligations also differ depending upon whether a legal entity is formed, and if so, which type of legal entity, and upon the state business entity law under which it is created.

In this article, we provide a checklist of the legal requirements to starting a business.

Decide if you want to create a legal entity

Individuals can own their business themselves, in their own name (which is called a sole proprietorship if there is one individual who owns the business, or a general partnership if there is more than one owner) or they can form a legal entity such as a limited liability company (LLC) or corporation - in which case the LLC or corporation actually owns the business while the individual owns the LLC or corporation.

Select your company’s legal name

The term "legal name" refers to the official name documented in the formation papers of a corporation, LLC, LP, or any other legally recognized business entity.

When determining the legal name for a business, it is important to consider the guidelines set forth by the governing statute under which the entity was formed. These restrictions encompass specific requirements for permissible words, prohibited words, and the availability of the chosen name.

For more information, see Selecting and protecting your company’s legal name.

File formation documents with the Secretary of State

Form your corporation, LLC, or other business entity by filing formation documents with the Secretary of State’s office or whichever department handles business filings for that state.
For more information on formation requirements, taxes, reporting, and more, see The Corporation Handbook or The LLC handbook.

Appoint a registered agent

Every LLC, corporation, limited partnership, or nonprofit corporation is required to have and maintain a registered agent in its formation state.  The name of the registered agent, and its address, must be set forth in the formation document.. A registered agent is responsible for receiving official documents and legal papers on behalf of your company. It is mandatory for the registered agent to have a physical office within the state of formation.

Many business entities opt to utilize the services of a registered agent service rather than having one of the owners, managers, or other individual assuming this responsibility.

Obtain your federal tax identification number

Also called employer identification number or EIN, a federal tax ID number is issued by the IRS and is used to identify your business entity and for federal business tax returns.

Register with the State Department of Revenue

The requirement for a state tax ID number is directly linked to whether your business is obligated to pay state taxes.

Tax responsibilities vary between states and local jurisdictions, necessitating the need to check the website of your respective state(s) or contact an accountant to obtain information.

Complete SUTA registration

To acquire a state tax identification number, businesses are required to register under each State's Unemployment Tax Act (SUTA). Unemployment taxes, paid by employers, contribute to a fund accessible to employees in the event of unemployment. This fee may be referred to as SUTA, unemployment tax, or unemployment insurance.

The application of SUTA varies from state to state. The process of SUTA registration can be handled by either the state department of labor or the state department of taxation, depending on the specific regulations of the state.

File for foreign qualification

If your LLC, corporation, limited partnership, or nonprofit corporation conducts business in a state other than the one in which it was formed, it will have to file for foreign qualification in those other states.

The state where you create your business entity recognizes it as a domestic entity, while any other state regards it as a foreign entity. Foreign qualification is the process through which a foreign business entity receives authority from the state to conduct business within that state.

Register a fictitious business name

In some circumstances, a sole proprietorship, partnership, corporation, LLC, or other entity may choose to do business under a name other than its legal name. In order to do business under a fictitious, assumed or d/b/a name, it will be required to register the name with the state and/or county.

Obtain the necessary business licenses and/or permits

Once a business entity is formed or registered with the Secretary of State, it may need to obtain licenses and/or permits to conduct business.

The requirements for licensing, registration, and permits differ based on the jurisdiction and the specific type of business or activity. The procedures for adhering to various licensing requirements also vary among states and municipalities.

For more information, see Understanding business license requirements and obligations.

File beneficial ownership information reports

Every person who owns or manages an LLC, corporation or other entity formed by filing a document with the Secretary of State or similar office needs to be aware of this new reporting requirement, to determine if their company is subject to BOI reporting. If so, their company will have to file a BOI report with the US Department of Treasury’s Financial Crimes Enforcement Network.

For more information, see The benefits of outsourcing Beneficial Ownership Information filing.

Obtain necessary insurances

Most states mandate businesses with employees to obtain workers' compensation insurance. Depending on the specific regulations in the state where your business operates, and the kind of business, you may also be obligated to acquire professional liability, commercial auto, and other forms of insurance coverage.

Open a business bank account and obtain a business credit card

An LLC or corporation should have its own bank account.  The individual or individuals who own the LLC or corporation should not use the entity’s bank account for personal purposes. Contact your bank about business banking requirements to ensure you have all the necessary paperwork in setting up the entity’s bank account.

Note: When a company (the subsidiary) is owned by another company (the parent) the subsidiary’s assets should be kept separate from the parent’s. The subsidiary should have its own bank account and its own books and records.

Also, establish business credit. A line of credit lessens the number of times your business must prepay for products. It also establishes a favorable credit history.

Comply with other government requirements

In addition to unemployment insurance and worker’s compensation, this may include OSHA, professional licensing and registration, payroll tax requirements, self-employment taxes, and so on.

Fulfill ongoing compliance requirements

To sustain your business, it is essential to fulfill recurring obligations such as reporting, fees, taxes, and filings that must be submitted to state, local, and federal agencies.

For more information, see A guide to business entity compliance and governance.

Learn more

Learn more about how CT Corporation can help with business formation, business licenses, beneficial ownership reporting, registered agent requirements, and more. Contact your CT Corporation representative or contact us here.