Startup Legal Requirements You Can’t Afford to Skip

Written by Wesley Henderson

April 6, 2021

You want to start a business or recently started one, but you want to do it the right way. Why? Well, because you want to run your business the right way and doing legal right is part of that. And, because you want to protect your personal assets. And your business assets. And, ultimately, you want peace of mind. Follow these steps below or use Drafted Legal’s templates, LLC, and Business Law 101 to get that peace of mind knowing that you can protect what you are creating. 

Step 1: Choose your business name

It’s important to pick a name that you can stick with and protect. Two objectives here: First, make sure you aren’t infringing on someone else’s protected name. Second, pick a name that is ripe for protection. The more distinctive, the better. 

This is one of the “fun” legal areas. Most people don’t realize that it’s a legal area, but, believe me, it is. I’ve been hired many times in disputes over trademark infringement (and even in cases with a single person business, so no matter your size, you are not immune to this one).

Action Steps: research these resources to make sure you are not infringing on someone else:

  1. United States Patent and Trademark Office. www.uspto.gov – use their search tools to look for your name. There are a lot of lookalikes out there so be sure to type in the address above and navigate from there.
  2. Google.
  3. Domain name – look it up. If the domain is taken, you might want to rethink your name.
  4. Secretary of State. This is where LLCs, Corporations, DBAs, etc. register. Type in your state and SOS [e.g. “California secretary of state entity search”].
  5. Hashtags and social media handles.

For more information on how to decide whether your name is available, I’ll teach you how to interpret these findings and pick a name that gives you maximum protection in Business Law 101 Course

Step 2: Choose an entity (LLC time!)

If you aren’t in a business entity, then that lease you sign or that contract you agreed to, that’s all on you, personally. Your goal is to make sure that any debts or obligations are taken on by the business and not you personally. If you fail to utilize entities, businesses and individuals and get judgments against you as an individual (which means most of your assets are vulnerable). This can prevent you from being able to borrow money and even impact your credit.

This is not what you want. Instead, you want the protection of a business entity. It’s important to make all of these debts, contracts, and obligations that of your entity, and not you, personally. In other words, ABC, LLC should owe that business money, not you.

We’re all used to hearing about the LLC and the S Corp. What’s the difference? Which one is better?

Good news – you don’t have to choose! You can be an LLC and get the tax advantages of the S Corp. In fact, that is how my law firm is set up.

For even more information, sign up for our Business Law 101 Course or get started with your LLC today. 

Step 3: Get a bank account

Now that you have a business name and an LLC, you need to get a separate bank account. Here’s what you need to take to your bank: 

  1. Personal ID
  2. EIN (Employee Identification Number, a tax ID number you get from the IRS; see below for how to apply)
  3. Entity paperwork. Depending on the bank, you may need a certificate of existence for an LLC and/or other paperwork documenting who has authority on the account. 

We always recommend local banks as they tend to be easier to work with in terms of lending early on to a growing business, but most any bank will be able to service your needs. Contact them ahead of time to make sure you have everything they want. 

How to apply for an EIN

To apply for an EIN for free, use the IRS website. You will get the number immediately and it only takes a few minutes. Go here: https://www.irs.gov/businesses/small-businesses-se…

Make sure you are only applying on an IRS website (not a scam website, and don’t pay anyone to do it online – it’s free!). If you have an accountant, they will do it for you as well. This EIN is essentially your company’s SS#.

Is a separate business bank account really that important? Yes

Whenever a business is getting sued, the plaintiff’s lawyer always wants to reach the personal assets of the owner. Without boring you with lawsuit strategies, it’s vitally important that you are able to show that your personal and business accounts are entirely separate. If a business owner has failed to separate their business and personal money, then they have jeopardized their personal assets. This is what’s known as commingling and oftentimes will cost you your personal liability protection. Learn more about protecting your personal assets and the best way to pay yourself from your business bank account without commingling in our Business Law 101 Course. 

Step 4: Business Licenses

Even if you’re working out of your home, you need to apply for a business license. They are typically called a home-based business license.

The city or county that you live in will have a business license department. Look up their number and call them. They are there to help you get this done. It can be a bit cumbersome but they will walk you through it. Sometimes you need to call a few times until you get a good employee to help you but I know you can get it done!

This step will cost a little bit of money but usually isn’t too bad. Basically, every government entity wants to get something so this is another way your local government will get a small fee. They usually have you estimate your first year revenue and follow a calculation.

Go and figure this out as soon as you’re ready to launch your business! If you do business without a license and get caught, then your local government may have much larger fees and be able to reach back for a number of years to collect those fees. It’s different in every jurisdiction so I can’t say for sure but I can say that the best move is to make sure you are in compliance so you won’t have any issues. 

Step 5: Contracts

This is not a technical legal requirement; just really really really smart.

Get a contract that protects you. This is your one chance to set the terms of the service you provide or the product you sell, so protect yourself. There are important clauses for each contract. If you sign up for my course, I will provide you with the contract and teach you what it says so that you can customize it and make it your own. You know your business and your deals better than anyone; take better control of those deals by learning what your contracts say.

We’d love give you the edge on your competition by setting you up with the templates you need

Startup Legal Requirements

Above you will find some of the most important startup legal requirements you cannot afford to skip. Contact an attorney to get customized advice for your business. If your budget doesn’t include hourly legal rates, then use the next best thing: Drafted Legal

FILE AN LLC NOW!

Wesley Henderson

Hi, I'm Wesley! A business attorney turned entrepreneur devoted to simplifying how you protect your business and your assets. Like you, I'm an business owner so I get it and I started Drafted Legal to help you put in place simple and sound legal strategies so you can focus on your business and not worry about getting lost in legal nuances.

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