Business & Commercial Law

The Basics of Starting a Business

Starting a new business is an exciting journey. Initially there are a number of steps to take to make sure the business is successful. Some of the steps involve legal requirements. From picking the name of your new business to the day to day operations, there are local, state, and federal regulations you may need to take into consideration.

It is essential to understand how the types of business structures, plans, finance options, and laws that may affect your new venture. Abiding by relevant regulations is crucial, so consulting with an experienced attorney may be the key to the success of your new business.

Creating a Business Plan

Starting a business is hard work, so creating a business plan to guide your business formation and provide you with direction can help you stay on track. If you need to obtain outside financing to grow your business initially, most lenders expect you to have a plan written out as well.

Many new business owners start working with an attorney from the very beginning of their business venture to ensure they start off strong and address any potential legal issues from the start. An attorney can be a major asset when drafting your business plan initially and planning towards the future.

Generally, business plans address the business structure, finances, and future marketing strategies. The more accurate your information, the better you can stay on track with achieving your goal and making your business idea a reality.

Legally Forming a Business

Once you have your business idea, the next steps to legally form your business are naming your business and choosing its structure. The first part of your business name can be unique to your brand, but you may need to check if the name is available, if that name is already trademarked, or if you wish to obtain a trademark yourself.

The next step is to determine the structure of your business. The business model you select may affect the name of your business. For instance if you decide to start a limited liability company, you may end your business name with LLC. Learning more about the different business structures and business naming conventions when speaking with a business attorney can help you make an informed decision on your options.

Sole Proprietorship

A sole proprietorship is owned and managed by one person entitling you to all of the profits along with the debts, losses, and liabilities of the business. Since the profits of the business count as your income, you pay the taxes individually on your tax return.

Sole proprietorships are simple to create and form automatically when a person starts conducting business activities. While no formal action is required to create this business model, the pertinent business licenses and permits are still necessary.


Partnerships are formed when two or more people come together to create a business. A partnership’s taxes are paid through the personal tax returns of partners as they are all considered self-employed.

Additionally, the partners have to decide how to share the liabilities of the partnership and document their decision in a partnership agreement.

  • General partnerships make all of the partners personally liable for the debts, losses, and liabilities of the business.
  • Limited partnerships have a partner with unlimited personal liability for the business while the others have limited liability.
  • Limited liability partnerships give limited liability to all of the partners. This protects each individual partner from debts against the business and actions of the other partners.

Limited Liability Company

A limited liability company is a more formal partnership where the owners are not personally liable for the debts, losses, and liabilities of the business. Starting an LLC typically requires filing articles of incorporation with the state, but each state regulates this business structure differently. Generally, the owners of an LLC are referred to as members.

A number of state laws don’t restrict ownership, meaning individuals, corporations or other LLCs, and foreigners or foreign entities may be a member of an LLC. However, some entities like insurance companies or banks are not eligible for these ownership rights.

LLCs may elect to pay taxes through the business like a corporation, or the members may choose to pay the taxes through their personal tax returns. Although members of an LLC have limited personal liability, a creditor may go after members in instances of fraud or failure to comply with the regulations governing LLCs.


A corporation is considered a separate legal entity from the owners because it can be held legally liable as its own entity. This gives owners of a corporation the strongest protections against personal liability but makes forming a corporation more challenging. 

The owners of a corporation are typically referred to as shareholders. Shareholders may be entitled to some voting powers for major changes, but most of the day to day business and operational matters are left to the board of directors and other high level officers. Additionally, corporations may also go public, meaning people can buy shares of the business.

Corporations require more operational procedures, record keeping, and reporting than other business models. Running a corporation also has different tax implications. The company is taxed once when the corporation makes a profit and then when the shareholders file their personal tax returns with the dividends from those profits. However, non-profit corporations have different requirements and tax structures.

Licensing & Permits

A number of factors will determine the licensing and permit requirements for your business. The type of commerce your business engages in along with relevant local, state, and federal laws play a role in determining the proper permits and licenses you need to get started.

Certain professional services or trades along with specialty shops may require special licensing to properly operate a business. Some businesses that require special licensing from a state agency or other governing body are:

  • Doctors and other medical professionals
  • Lawyers
  • Teachers and educators
  • Accountants
  • Liquor stores
  • Firearm shops

Taking care of securing the correct permits and licenses at the outset may help prevent a number of legal issues down the road. A knowledgeable business attorney can assist you with filing the correct documentation and help you get off to a strong start with your new venture.

Financing a New Business

Starting a new business can be an expensive endeavor and you may need additional funding to get up and running. Your business attorney can review your options with you and go into further detail about the legal ramifications they may have on your business.

Securing a line of credit to fund your business may be done in the name of the business or by you personally. Using debt financing allows a business to take out a loan from another person, business, or bank with the obligation to pay back the amount borrowed plus the interest accrued.

Some businesses owners prefer this option because it allows them to maintain more control over their business and may qualify the business for tax deductions. However, failure to abide by the repayment schedule will impact the long-term success of the business and, maybe for you personally. For personal lines of credit, you may lose personal assets like your home or car. For commercial credit lines, the bank may try to outright take over your business if you continually miss payments.

Equity financing allows you to accept investments from other people or businesses in exchange for an ownership share in your business. When investors have an ownership interest in your company, they are entitled to the potential profits from your business and they may have voting rights on decisions about running your business as well.

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