Legal and Regulations

Legal and administration: Getting the details right

Making plans to turn your entrepreneurial dream into a reality may be the most exciting part of starting a business. But a number of legal and administrative tasks stand between the plan and the execution. Take time to get the details right.

Published: October 17, 2014
Updated: February 14, 2017

A legal foundation 

By starting a business, you create a new identity that's separate from your own. This could be as simple as a name, such as "Amy's Catering," that identifies who you are and what you do but isn't a separate legal entity. Even if you're starting small, however, it's important to give thought to the legal structure of your new venture. This will affect everything from the taxes you pay to the people who can make decisions and incur liability for your company. The possibilities include:

  • Sole proprietorship. As an unincorporated company under one person, this is the simplest type of business from a legal and tax perspective. Because you and the business are essentially the same, you retain complete control as well as unlimited liability.

  • Partnership. A partnership lets two or more people or entities share the risks and rewards of a business venture. Whether you choose the general or limited version, a detailed partnership agreement is essential for smooth collaboration.

  • Limited liability company (LLC). This option is organized like a partnership, but limits the personal liability of the owners as in a corporation. Profits or losses are typically passed through to individual owners, although you can choose to classify your LLC as either a partnership or corporation for tax purposes.

  • S-Corporation. This simplified corporate structure helps avoid "double taxation" of both the corporation and its shareholders, but is limited in the number of shareholders that it can have and takes more paperwork to establish and maintain than an LLC.

  • General "C" corporation. This is the most complex type of company to establish and operate. Depending on your goals, a corporation's flexibility, permanence, and ability to generate capital by selling shares may outweigh the administrative and legal burdens.

Even if you're a committed do-it-yourselfer, this is one area where a little good advice can pay big benefits. Consult a legal or tax professional to discuss which structure might be best for your situation. Local expertise is especially important because documentation and tax requirements often vary by state. 

Administrative details

Compared to choosing your name or polishing up your business plan, the administrative responsibilities of a new venture may seem uninspiring. But getting the details organized early in the process is still critical — both to avoid unpleasant surprises and to free up time so you can serve your customers. Here are some areas to consider: 

  • Licenses. A business license is almost always required, and more specific licenses and permits may be necessary depending on your industry and any state or local regulations. 

  • Listings. Get listed in local business directories, both online and off, and join any relevant groups, such as local business associations and your chamber of commerce.

  • Website. Your website and other online tools can play important administrative roles, especially if you receive payments online.

  • Bookkeeping. Decide whether to hire a professional or handle the books yourself, then set up the software, systems, and processes you'll need to keep them in order. 

  • Technology. Purchasing computer systems, phones, and other technologies is a key early investment for many businesses. These days, signing up for online services, from contact management to cloud storage, may be just as important.

  • Employees. Some businesses will never hire an employee. But if you plan to add staff right away, get an early start on the employment forms, records, and tax paperwork involved.

  • Where to get help. Keep in mind that your needs will be as unique as your business, and this list is just a starting point. You can get much more information and advice from city, county, and state authorities, as well as local nonprofits.

What kind of company will you create?

It might seem obvious, but visualizing the kind of company you wish to build can help focus your planning process and identify any gaps. Will your venture be:

  • Owned by you alone, or with investors or partners?

  • Part-time for now or full-time to start?

  • Home-based or with an office, shop, or storefront?

  • A solo operation or staffed by employees?

  • Selling products or services?

  • Serving consumers or other businesses?

  • Brick-and-mortar, online, or both?

  • Engineered to scale up or streamlined to stay small?

  • Built to sell or intended to run indefinitely?

Action steps

Build a legal foundation for doing business.

  • Seek professional advice to choose the right legal structure for your business, and file any related paperwork.

  • Register your DBA ("doing business as") if this differs from the legal name of your business.

  • Apply for a business license from your county registrar or other authority.

  • Obtain any other licenses or specialized permits you will need to operate.

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