Legal Steps to Start an Online Business

Legal Steps to Start a BusinessNow that you have settled on a name, it’s time to take care of the legal steps to start a business. And don't be scared – this can actually be pretty cool and exciting.  This is the time where you will pick a corporate entity, file some paperwork with the state where you do business, and get a tax ID number.

Before we get to the checklist, I want to make sure you aren't completely overwhelmed. Some of these steps will take you a couple minutes, others make take you a couple hours. You don't need to get them all done at one time or in one day. Take your time and get this done right the first time, then you won't ever have to worry about these steps again (until you start your next business…) So, here’s a quick rundown of everything you need to do:

Legal Steps to Start a Business

DO THIS FIRST IF YOU HAVE PARTNERS:

Get an agreement in place that discusses all the in’s and out’s of your business. What will happen if things go south? What if one of you has to go through a divorce or dies? How will you divide up the profits of the business? Will the company retain the earnings or will you distribute them? What about salaries? It’s better to get all this in writing NOW, while things are still new and exciting, than to try and figure it out later.  

FYI, we recommend you get a lawyer for this part, even if you decide to handle everything else yourself. The legal fees will more than pay for themselves if things do go south. Contact us to schedule a free strategy session.

Settle on an appropriate business entity.

This will depend in large part on the type of business you have, whether you have partners, whether you will be seeking outside funding, etc. Here are your options: Sole Proprietorship, Limited Liability Company (LLC), Partnership, S-Corp or C-Corp.

File your corporate or LLC paperwork

(Articles of Incorporation for a Corporation or Articles of Organization for a Limited Liability Company) with the Secretary of State’s office in the state where the business will operate in. If you are unclear on how to do this, consider investing in our LOCK it Down™ (legal) Startup Course that will teach you how to set up your LLC.

Apply for an Employment Identification Number (EIN)

You will do this with the Internal Revenue Service. You can apply for an EIN online by clicking here.

Open up a business bank account.

Take the file stamped Articles you filed with the State and your EIN letter from the IRS to your favorite bank and open up a business checking and savings account.  INSIDER’S TIP: Push hard for free checking. The bank wants your business.

Make your S-Corp tax election. 

If you have decided that you would like to be taxed as an S-Corp, make sure to File Form 2253 with the IRS within 75 days of opening up shop. You can file this paperwork regardless of whether you are an LLC or a corporation. Your lawyer or accountant can walk you through this process if it seems tricky to you.

Prepare an operating agreement. 

If you didn’t take care of this when you prepared your the agreement discussed above, make sure to prepare an operating agreement and/or bylaws as required by your state. Get a lawyer to help you with this if you have any questions at all.

Get some insurance. 

Purchase a general liability insurance policy for your business, and workers’ compensation insurance if required in your state.

File for a trade name if appropriate. 

File a trade name or DBA with the secretary of state where you live as appropriate

Don't dodge the sales tax issue. 

Determine whether your business will need to collect sales tax, and if so, in which states. If you are selling physical products on Amazon or via an e-commerce platform such as Shopify, consider a vendor such as TaxJar (affiliate link) that can handle this for you.

Get your documents together. 

Prepare a corporate file. You can either do this old school with a three ring binder and tabs, or create an electronic file. Preferably, you will have one of each with the electronic copy serving as a backup. In this file you will place everything related to the business, including: Articles of Organization/Incorporation, Tax ID letter from the IRS, Bank Account information, Sales Tax Information, Shareholder agreements, internal contracts, passwords to online accounts, etc. We recommend either Evernote or Dropbox for this.

Start building your legal and professional “team”.  

Meet with and hire an accountant to get your taxes in order, including setting up quarterly tax payments if necessary. Provide them with an electronic copy of the corporate file you prepared. If you haven't already discussed these issues with an attorney (hint, hint), do so now.

Don't forget important dates. 

Calendar due dates for annual reports (late fees for these can be HEFTY) and annual meetings, if necessary for your entity (this is helpful to protect your corporate veil). (Your lawyer can assist you with this). You will also want to calendar the due dates for state or local franchise taxes.

Keep good records.  

Make sure to document major acquisitions of either property or equipment. Provide this information to your accountant to maximize your end-of-year deductions.  In addition, you will want to create a log of all major corporate activities and keep it in the corporate file. This includes major purchases, and/or investments, new hires of both employees and independent contractors, and major purchases of inventory.

Finally, don't forget to obtain the proper licenses…

Many, but not all, state and local jurisdictions in the United States require that you obtain a business license to lawfully operate a business. Now’s the time to do that.

  • Research the laws and rules in your local jurisdiction for your type of business. Rules vary by jurisdiction, but at a minimum you will want to visit your state, county and city websites to research what will be required of you.
  • File the requisite forms and pay the license fees to obtain a valid business permit/license in your jurisdiction.

In the next installment of this series, we will be discussing how to properly protect your intellectual property.

Can't wait? You can download the whole business building legal guide here.

Would you like help every step of the way? If you are an online coach or course creator who is interested in getting paid, getting protected, and getting their business legally legit all for less than the cost of your morning latte, then consider investing in our LOCK it Down™ (legal) Membership Program. In this program you will get video tutorials, over $2,000 worth of legal forms, checklists and monthly group coaching, all for a low monthly investment.

Click here to learn more about our LOCK it Down™ (legal) Membership

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LEGAL DISCLAIMERS

The information provided on this website is designed to provide information in regards to the legal aspects of running your online business and is presented with the understanding that The Hart Law Firm, P.A. d/b/a Hawthorn Law is not engaged in rendering legal, accounting or other professional services by providing this information. If legal advice or other professional assistance is required, the services of a licensed attorney, tax professional or financial advisor should be sought. Feel free so use this link to schedule a strategy call with an attorney.