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Business Law

Key Legal Principle: When starting a business, the legal structure you choose (sole proprietorship, partnership, LLC, or corporation) will determine liability, taxation, and compliance obligations.

Legal Structures for Starting a Business

When creating a business there are a number of different types to choose from. These different types can have implications for issues like how the business is taxed and how liability for the business is established

Corporations are the most dominant form of business entity because for various reasons including the ability to attract investors by issues shares, the perpetual nature of a corporation and the political benefits of corporate personhood. Depending on a business's goals however other business types can offer advantages. Forming a business is done under the auspices of state law. The Secretaries of State (or Lieutenant Governors) of a state will have the forms, rules, guides and explanations for forming a business in that state and those are excellent resources for deciding where to create a business and which entity best suits the business's goals.

Creating a Business

The following is a non-exhaustive list of possible consideration in starting a business with a separate column to highlight some of the legal considerations. Resources like Bloomberg's Entity Formation Toolkit expand on and clarify some of these points.

General Steps to Starting a Business Legal Considerations in Business Formation

  • Develop a business idea

    • Identify a market need or problem to solve.

    • Conduct market research to test feasibility.

  • Create a business plan

    • Define objectives, target audience, marketing strategies, operational structure, and financial projections.

  • Choose a legal structure

    • Options include sole proprietorship, partnership, LLC, or corporation.

    • Structure impacts liability, taxation, and regulatory obligations.

  • Register the business

    • File appropriate documents with the state (e.g., Articles of Incorporation or Articles of Organization).

    • Obtain an Employer Identification Number (EIN) from the IRS.

  • Secure permits and licenses

    • Business licenses, professional certifications, zoning approvals, and industry-specific permits as required.

  • Set up finances

    • Open a dedicated business bank account.

    • Keep personal and business finances separate for accounting and liability purposes.

  • Acquire insurance

    • General liability, workers’ compensation, or industry-specific coverage to protect against risk.

  • Understand tax obligations

    • Comply with local, state, and federal tax requirements.

    • Maintain accurate records to avoid penalties.

  • Launch and grow

    • Build a marketing strategy, develop an online presence, and focus on customer engagement.

  • Legal entity choice

    • Sole proprietorship, partnership, LLC, or corporation each carry different implications for liability, taxation, and management.

  • Contracts

    • Draft clear, enforceable agreements with customers, suppliers, employees, and partners to reduce risk.

  • Employment law compliance

    • Wage and hour rules, anti-discrimination laws, workplace safety, and employee classification (employee vs. contractor).

  • Intellectual property protection

    • Register trademarks, copyrights, and patents to protect brand and products.

  • Insurance (legal perspective)

    • General liability or professional liability coverage often required or advisable.

  • Tax and reporting compliance

    • File annual reports, pay taxes, and maintain financial records.

    • Stay updated on changing laws and obligations.

  • Seek legal counsel

    • Professional advice helps reduce liability and ensures long-term compliance and sustainability.