Did you know that many people began brainstorming a new business idea throughout the pandemic? If you want to become a new business owner but don’t know where to start, we can help.
In this guide, we’ll go over tips on starting a startup. You’ll learn about different legal issues to consider, as well.
Want to learn more? Keep reading.
1. Ask Yourself Some Questions First
You should sit down with your partner or alone and determine your goals. Will you provide services or goods? Would you prefer to work independently, or do you plan to hire employees down the road?
Are there financial requirements for your business? What money do you have saved for your business, or will you need to borrow everything?
Gather this information. Legal entities won’t be a one-size-fits-all solution. Your business will have specific needs based on its niche and audience.
2. What Is a Sole Proprietor?
A lot of people will begin their journey as sole proprietors. You will need to operate under your Social Security number for tax purposes.
File an IRS SS-4. You could also apply for a Taxpayer Identification Number (TIN) for your new business.
The business tends to get run under your legal name. If you prefer to give the company a different name, register a Doing Business As (DBA). State the name you will provide your business.
This process will let your local or state government know the name you plan to operate.
Specific DBA registration rules will vary. You could also apply for a federally registered business trademark or a trade name.
3. What About a Limited Liability Company (LLC)?
The LLC structure has become super popular for independents because it’s simple.
There are legal protections of a corporation that will cover your assets. This structure got first designed to protect an owner from business-related liabilities.
4. Consider an S-Corporation
S-Corps are a unique entity and are separate from people who own them. This is a business structure and receives the designation from the IRS.
You will have limited legal liability. This means you’ll have a separation of personal assets from your business. You’ll also have a separate legal corporate entity and tax entity. There are similar exceptions for LLCs.
The profit from your business will get reported under a separate tax return filing form. The taxable profit will pass through to your tax return.
5. There’s Also a C-Corporation
C-Corps will make owners the shareholders. A C-Corp will have the same status as a Fortune 500 business. The business is a corporate entity that’s separate from the owners.
In the event of an individually-owned C-Corp, you’re not only the owner of your company. You are also a principal shareholder. The corporation is a separate legal entity. It’s an individual taxpayer in the eyes of the IRS.
This structure is a more complicated business arrangement. Yet, it’s one of the more sophisticated options and is an excellent option for independents.
6. Brainstorm Your Business Name
If you plan to file as a Sole Proprietor, you must register your business name. You will either register a Fictitious Business Name (FBN) or a Doing Business As (DBA).
The registration won’t provide trademark protection. It will allow you to create and use the name you prefer. The process will let your state or government know the name you plan to use.
You can use the name but not have to incorporate it. It won’t work as a legal entity and provide legal protection to the sole proprietor.
If you don’t end up registering a DBA as the Sole Proprietor, the name of your business will default to the owner’s name.
If your name is Amanda Marie, and you form a content company, the business’s legal name will be Amanda Marie.
If you plan to name your business Amanda Marie Content, you will have to register this as a DBA name. The specific registration rules will change from state to state.
7. Look at Getting an EIN
Get an Employer Identification Number (EIN) if you hire employees. The EIN will identify your business for tax purposes.
You can use it to open a bank account for your business and apply for business licenses. You will also use it to file tax returns.
Use the IRS EIN Assistant. You can apply for an EIN online. You don’t need an EIN if you operate as a single-member LLC or a sole proprietorship.
An EIN will create separation between personal and business liability. Shield your social security number on documents to prevent identity theft.
8. Look Into Getting Business Licenses and Permits
An independent contractor will need to get the proper licenses and permits. Get licensed at a federal level, depending on your business’s location and industry.
Federal licenses are necessary for businesses involved in activities regulated and supervised by a federal agency. Look at working with a business formation lawyer if you need.
9. Pay Local and State Taxes
Income tax isn’t the only tax you have to cover. Make sure you understand the different tax requirements you’ll have.
Most contractors are self-employed. They have to pay self-employment tax along with income tax.
Starting a Startup
We hope this guide on starting a startup was helpful. Make sure you understand your goals and the capital needed.
Are you in need of more marketing or business tips? Keep learning how to launch your startup this year, so it’s a success by checking out our resources on the blog.
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