After having a business idea, forming a legal entity and properly registering it should be step 1. It creates the foundation on which you build everything on top of. How you go about this will depend on resource allocation and complexity of your enterprise. In many cases, online resources like LegalZoom are a great place to start if you don’t have any experience dealing with state or federal forms helping you will avoid making mistakes that can cost you dearly down the road.
These are just some of the tough decisions you’ll face when registering your business:
- Choosing an Entity Structure
- Business name: Name availability check and trademark information for both industry type and location of the business.
- Filing for Taxes, Licenses, and Permits
Services like LegalZoom do provide an easy way to register your business by guiding you through a streamlined Q&A process. However, if your business operates in a heavily regulated industry or in multiple legal jurisdictions, it may be worth the investment to consult an attorney and/or CPA to register your business entity.
So which boat will you sail out on? Choosing the best legal entity means choosing the right one by assessing initial financing, collaborators and partnerships.
LLC - The Popular Choice
The most common entity for start-ups is the LLC or Limited Liability Corporation. Well-known advantages include pass-through taxation, which means that profits and losses “pass through” the business to the individuals owning the business, who then report on their own personal tax returns. This can result in paying less in taxes as profits are not taxed at both the business level and the personal level. Also, business owners are not usually responsible for the company’s debts and liabilities, unless they are criminal – but that doesn’t apply to you, right?
The processing of forming an LLC vary by state with some states charging annual fees and taxes that can diminish the economic advantage of forming and LLC to begin with. It may not even be necessary to form your LLC in the state in which you start your business - many companies choose Delaware regardless of their location because of favorable tax laws while others choose their local state because of grants and incentives. For information on corporation guides for all 50 states click here
It’s all in a Name
Naming your business will be one of the most challenging and (hopefully) rewarding things you do when starting your business. Cut to the chase and think in terms of emotion. Remember the adage - facts tell, stories sell. Look for words that tell the story of your business and evoke the essence of what your company embodies. For some deep soul searching and preparation, watch Simon Sinek’s TED talk, How Great Leaders Inspire Action.
Consider the visual expression of the name as well. How does the name look written in the context of images or other words with which it will be found? Try it out – drop potential names to friends and family of different generations and demographics and see how it plays. What does Google say? Make sure your name translates well to all the countries in which you will do business. The same goes for logo and colors. And never be afraid to test it out. Also, be sure to watch out for these pitfalls: 7 Terrible Naming Mistakes Entrepreneurs Make.
Patents & Trademarks
Definitely not #1 on the DO list, filing for patents can be extremely costly and resource intensive. In some cases, a slight alteration to a product or name can make the “knock-off” no longer subject to patent infringement restrictions relating to the original. A trademark or service mark might be a better choice. Or not. If you feel you have a truly innovative product or solution, a good patent lawyer could become your best friend.