Legal and Regulations

Key legal documents for your business

From your business structure to binding contracts, documentation is an important aspect of your business.

Published: February 02, 2015
Updated: February 14, 2017

When it comes to legal documents, preparation is key. Review your documentation with your attorney upfront before a problem arises. These three types of documentation for small businesses are particularly important.

1. Documentation: Business entity

Your business structure determines the documentation you need to file initially and each year going forward:

  • A corporation structure limits personal liability for obligations of the corporation. To form a corporation, you must file documents at the state level. You could lose personal liability protection or face other legal issues if you don't properly document your corporation, even if you meet requirements such as holding annual meetings and filing required reports and fees. With a corporation, you also need to file a corporate federal tax return, in addition to your personal return.

  • An S corporation is a structure for which the owner files an S corporation election on IRS Form 2553. An S corporation provides special treatment to avoid being taxed “double,” as is the case with C corporations for which corporate profits and the owner's profits are taxed.

  • The Limited Liability Company (LLC) structure also limits personal liability, but it may involve fewer administrative requirements than a corporation — especially for one-owner LLCs. Documents are filed at the state level. Tax filing tends to be simpler than with a corporation. You file a personal IRS Form 1040 personal return and attach a Schedule C containing business information.

  • "Doing business as" (DBA) is another common small-business structure. You operate as a sole proprietor but use a business name other than your personal name. Go to your secretary of state's website, see if the name is available, download a form, and follow instructions for registering your DBA for a small fee. For tax purposes, file a 1040 with a Schedule C attached.

2. Documentation: Permits and licensing

Before you start a business, you will need to check with your local, state and federal authorities on the various licenses and permits which are required for your business. The permits and licenses vary by your type of industry and location.

Any business affecting the public's safety tends to require permits and inspections. A tattoo shop or a restaurant, for example, will be more regulated than a copywriting firm.

Some industries, such as food manufacturing, may have to check with federal regulators such as the Food and Drug Administration. Check necessary federal permits, and work your way down to the local level. The U.S. Small Business Administration website can point you to which licenses apply to your business and specific location.

You might need to re-apply for a license or permit if you make any major changes to your business, such as incorporating.

3. Documentation: Contracts

Other types of legal documents include:

  • Independent contractor agreements: These define the relationship between you and the worker to avoid an IRS misclassification ruling. They also specify who owns the work. The contractor should sign IRS Form W-9 so it's clear he or she is responsible for taxes.

  • Customer contract forms: Involve your attorney in drafting all customer contracts.

  • Nondisclosure and confidentiality agreements: If you're sharing proprietary information, ask the other party to sign a nondisclosure agreement. Proprietary information can include your business plan, marketing forecasts, and customer list.

  • Partnership agreements: Even if your business partner is your spouse, a partnership agreement helps avoid problems. Be sure to define:

    • Roles in terms of labor, time, cash, and property

    • How profits will be distributed

    • How business decisions are made

    • Ownership interests if someone dies, retires, or otherwise leaves the business

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