Legalizing your business in the United States can seem overwhelming to new business owners. It requires numerous steps at both federal and state levels and takes a good amount of time.
In this post, you will learn the exact steps you need to take for legalizing your business and easier ways to do it.
Before we get started with the process of legalizing your business, you need to make sure that you have:
- A solid business plan
- The required expertise
- A unique and memorable business name
- The right human resources
- Other relevant tools and resources
Once you are ready to start your business, follow the steps below for legalizing your business:
1. Choose Your Business Entity Type
The first step towards legalizing your business is to choose what type of business entity you want to form. Different business entities offer different advantages and disadvantages, so learn a bit more about each and then make an informed decision.
These are five of the most commonly used business structures that you can choose from:
- Sole Proprietorship: A company started by one person who is the sole owner and is personally liable for the company’s debts and liabilities.
- Partnership: Similar to a Sole Proprietorship, but with multiple co-owners who share the profits, losses, and financial liabilities of the business.
- Limited Liability Company (LLC): A pass-through taxation entity that provides liability protection to owners and can be taxed as a Sole Proprietorship, Partnership, or Corporation. It is the most flexible form of business structure and is most widely used.
- Corporation: A business entity that is investor-friendly and provides complete liability protection to owners. However, forming a Corporation leads to double taxation (as a Corporation and on individual shareholder earnings). It is preferred by large businesses.
- S-Corporation: Similar to a Corporation but it allows owners to avoid double taxation. It provides pass-through taxation, which means the profits and losses of the company are passed on to the personal income tax reports of individual shareholders.
Depending on the type of entity you select, you will need to fulfill different federal and state filing requirements and paperwork.
All of that can be overwhelming, especially for first-time entrepreneurs.
However, the good part is that, regardless of the entity type you choose, you can use the business formation services of GovDocFiling to register your business. With GovDocFiling, you’ll simply need to fill out one application for both federal and state filings and get expedited processing.
2. Register Your Business at the Federal Level
Every legal business entity in the U.S. needs a federal Employer Identification Number (EIN) or Tax ID. It is provided by the Internal Revenue Service (IRS) and is necessary to conduct your day-to-day business activities.
Other than the mandatory EIN number, most types of businesses don’t need to file anything else at the federal level.
There are, however, certain cases where you will need to file some forms with the federal government for legalizing your business. These include:
- Filing with the US Patent and Trademark Office if you want a trademark for your business name or products.
- Registering a tax-exempt organization with the IRS if you want to open a non-profit organization.
- Filing Form 2553 with the IRS if you want to create an S-Corporation.
For most businesses, once you obtain an EIN, you can move directly to the state filings.
3. Complete the State Filings
The process and requirements for state filings will differ depending on your entity type and state.
Connect with your state authorities to find out the exact requirements for legalizing your business in the state in detail. Some states allow online filing while others require that you submit a hard copy of documents.
To form most businesses, except Sole Proprietorships, you will need to find a Registered Agent before legalizing your business and completing state filings.
A Registered Agent is a person who legally represents your business and will receive all legal notices and documents on the behalf of your business. They must have a physical street address in the state.
While you can be the Registered Agent yourself, we recommend that you choose a lawyer for that role.
When completing state filings and legalizing your business, you will need to provide the following information about your business:
- Business name
- Business location
- Ownership and management structure
- List of directors
- Registered Agent details
- Shares details (for Corporations only)
You will also need to prepare additional documents for legalizing your business as different entity types:
- To form an LLC: Articles of Organization and an LLC Operating Agreement
- To form a Limited Partnership: Certificate of Limited Partnership and Limited Partnership Agreement
- To form a Corporation: Articles of Incorporation and Corporate Bylaws
If you want to use a trade name or a fictitious name for your business operations, you will also need to file for a DBA (doing business as) for legalizing your business.
4. Get Local Licenses and Permits
In a few cases, completing your federal and state filings is not enough for legalizing your business. You may also need to acquire some business licenses and permits to start operating your business.
These licensing requirements differ based on the type of business you want to start and the industry you are in.
For example, if you want to legalize a food business, you may need a food service license, liquor license, etc. Similarly, you may need a contractor license for legalizing a contractor license.
Find out the specific licenses and permits you need to get authorized to do business and the process to acquire them.
Ready to Get Started?
Legalizing your business is just the starting point, you still have a long way to go to make your business successful. It is, however, an important step that needs to be done right.
Use the steps mentioned above to complete the process of legalizing your business the right way. This will help you avoid any legal hassles and lawsuits later.
Do you have any further questions about legalizing your business? Feel free to leave them in the comments section.