how to set up a legal business

Whether your business is a sole proprietorship or a mega-corporation, it will all begin with a concept and a name. So what is in a name? What does a name matter to your business?

The answer is - everything! The name you choose for your business will help you build a brand and image in the marketplace. Therefore it must be memorable, relevant and simple for your potential customers to remember.


Your business name is very important and you should take some time to choose the right name for your business. It should be one that you can easily brand.

Now you can choose a good logo and slogan to match your business name. This will help you brand your business.


Your Company’s Legal Entity

It is important to decide on a legal structure for your company. There are five main options:

1.

Sole Proprietorship
2.

Partnership
3.

LLC
4.

S-Corporation
5.

C-Corporation

A Sole Proprietorship is simply registering your company as a DBA (Doing Business As) with your local government officials. Still, you’ll want to open separate bank accounts to keep your business and personal finances separate.


Being a sole proprietor means that you - and only you - make all the decisions and invest any money needed for the business. You do anything and everything. This is quite a large responsibility - especially as your business grows and its success or failure rests on your shoulders.

Many people will start their businesses this way, happy to be their own boss. But if you plan on maintaining your company for a long-term venture, it may be wiser to start with a corporation from the beginning.

Partnerships are similar to a sole proprietorship, but include two or more people. Again, there is no protection of your assets and you’re responsible for the actions of each partner.

In order to maintain a partnership, you have to both share responsibilities and profits from the business. Your taxes are individually filed from the revenue each person receives.

Partners will be equally responsible for decision-making and allocating funds. Profit and loss will be shared. Always think carefully before entering into a partnership. You must be able to trust each other completely and be able to work together like a well-oiled machine.

If you have any doubts, don’t enter into a business partnership, since many good friendships and businesses have been dissolved this way. Always be sure to work out in writing how much of an investment of time and money each one of you will be contributing, as well as the division of profits.

A Limited Partnership is when one partner will run the business and the other partner or partners will just invest a limited amount of money and will not have full say in the business decisions.



But when it comes to taxes, the LLC is similar to a partnership or sole proprietorship. Each person in the LLC files their own taxes. You set up an LLC as you would a corporation – by registering the Articles of Incorporation with your state government officials.

Then we come to the major forms of Corporations – an S-Corp and a C-Corp. A corporation is when shareholders own the business. The actual owners will hold the major portion of the company stock and shareholders will hold the rest.

All of the major shareholders will make company decisions. The major shareholders will be on a board of directors to handle business decisions and guide the company.

When you form an S or C Corporation, you get both tax benefits and asset protection. The corporation is a separate entity – so it is regarded in the eyes of the law as an individual.

You will need to file a separate tax return and the company when you file your own personal taxes showing how much income you made from the corporation.

S-Corporations are perfect for smaller businesses and even one person can form a S-Corp. A C-Corp is usually for larger entities where different classes of stock are going to be issued and more than 75 shareholders will be involved.

You don’t have to, but you may want to enlist the help of a corporate attorney to draw up the legal specifications of your S or C Corporation.

You’ll need to file your Articles of Incorporation and get corporate kits that include corporate supplies, such as the corporate seal and minutes log.

Non-profit corporations are formed by businesses involved in charitable causes and are tax exempt. Individuals can also get a tax break when donating money to a non-profit organization.

It will often be easier to manage a number of small companies under one corporate umbrella.

How would this work for you? You can have several smaller companies, focusing on different niche markets, which would all be under one umbrella corporation.

The “corporate office” would make the major decisions. However that small company with the parent company’s approval would make decisions affecting only one particular subsidiary business. This would allow you, as the corporate headquarters, to allocate management but still be in control of the actual running of the business. And do keep in mind that you, as one individual, can be the only personnel of the entire corporate office/headquarters and all of its subsidiaries!




If you intend to open a bank account in your corporate name, you will need to contact the bank. Your bank will require these, a copy of your Articles of Incorporation stamped with your state’s seal.




However you decide to organize your business, be sure to think it out very carefully and weigh the pros and cons before setting it up legally. It will depend largely on what sort of business and how many businesses you plan to own.

Company growth will play a large role in your decisions. You can start as a small one-person operation and then grow to a mighty corporation. Many successful companies have done just this.